Strategic Intellectual Resource Management - DIVA

2005:046 CIV

M A S T E R ' S T H E S I S

Strategic Intellectual ResourceManagement

An Emerging Concept of New Technology-Based Firm Development

Markus Bergfors Martin Börjesson

Luleå University of Technology

MSc Programmes in Engineering

Department of Business Administration and Social SciencesDivision of Industrial Organization

2005:046 CIV - ISSN: 1402-1617 - ISRN: LTU-EX--05/046--SE

STRATEGIC INTELLECTUAL RESOURCE MANAGEMENT An emerging concept of new technology-based firm development

The case of NordNav Technologies

Luleå, December 2003

Markus Bergfors Martin Börjesson

Supervisor: Diana Chronéer

Department of Business Administration and Social Science Division of Industrial Organisation

Luleå University of Technology

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PREFACE This thesis that you are currently holding in your hand represents a journey in the world of high tech and small businesses spanning almost a year. It is a Master Thesis presented at the division of Industrial Organization at Luleå University of Technology. The study on strategies in small and growing high technology businesses was carried out on behalf of the company NordNav Technologies AB, seated in Luleå and Stockholm. The study was conducted from January to December 2003. This thesis was initially intended for managers of small and growing companies. In the end however, it was realised that the thesis also was of significance to venture capitalists and other institutional business owners. Both have an interest in sustaining growth. It is the authors hope that our work can be put to good use, not only at NordNav, but in other companies as well. Many individuals have been involved in this project, both from NordNav as from the university. The authors especially want to acknowledge the contribution by our supervisor, Diana Chronéer, who sometimes had a hard job keeping us on track. At NordNav Jorma Mobrin gave us valuable insights into both strategic and operational processes, and Per-Ludvig Normark provided us valuable understanding of a founders view of the company. We also have to thank Andreas Larsson who read the thesis and gave us valuable feedback at our closing seminar. However, there are two people who have been forced to make immeasurable sacrifices over the past year; Terése and Hanna. There are many late nights for which we have to compensate. We love you both! Luleå and Stockholm, summer 2004 Markus Bergfors Martin Börjesson

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ABSTRACT In recent years much attention has been directed towards the small and medium sized firms of the business environment. With increasingly shortened technology and business life cycles many start-ups try to capitalise on this development. However, while it has been realised that these firms play an important part in the economy, the survival rate of newly started firms is extremely low. New technology-based firms do not function like established or larger firms for several reasons; reasons linked with their smallness, their applied technology, and their organisational maturity, amongst other things. Therefore, much previous research in management does not apply directly to these kinds of firms. This thesis focuses on NordNav Technologies, a newly founded technology-based firm, from the perspective of the critical resources and ongoing organisational development. The general research question was “What are the critical success factors for growth and how should they be managed?” while the specific research questions explored what theories and models should be used, what approach should be chosen, and how these choices affected NordNav in particular. It was ascertained that technology and competence are the two most critical resources for new technology-based firms and a theoretical framework was constructed through the merging of strategic technology management theory and strategic human resource management theory in a new technology-based firm context. The unified framework, Strategic Intellectual Resource Management (SIRM), evolves from a resource based perspective and focuses on intellectual resource gaps in technology and competence. These gaps can be addressed either through the acquisition of new resources or the development of existing resources. Previous studies have shown that new technology-based firms often do not balance these views but focus too much attention on technological issues. The SIRM framework can help these firms to focus limited managerial resources to the areas where they are most needed. Drawing on the SIRM framework several models for acquisitions and development are presented and analysed from the perspective of NordNav Technologies. While the company at this point enjoyed a period of success, there were several issues that needed to be dealt with in light of future potential. However, because the NordNav organisation has not yet reached a state of formalisation many of the problem areas can still be addressed. New technology-based firms in general should incorporate the principles of SIRM in their strategy and business assessments as a way of moving beyond their barriers to growths.

STRATEGIC INTELLECTUAL RESOURCE MANAGEMENT Markus Bergfors Martin Börjesson

Table of Contents 1. Introduction ............................................................................................................................ 3 2. NordNav Technologies ............................................................................................................ 4

2.1. Brief background of the company................................................................................................ 4 2.2. The external environment ............................................................................................................ 4 2.3. The present situation .................................................................................................................... 5

3. Problem area development ...................................................................................................... 6 3.1. The technology-based start-up ..................................................................................................... 6 3.2. Barriers to growth ........................................................................................................................ 7 3.3. Resources and capabilities ......................................................................................................... 10 3.4. Conceptualising technology and competence ............................................................................ 11 3.5. Research purpose and questions ................................................................................................ 13

4. Methodology.......................................................................................................................... 14 4.1. Research purpose ....................................................................................................................... 14 4.2. Research approach ..................................................................................................................... 14 4.3. Research method........................................................................................................................ 16 4.4. Research process ........................................................................................................................ 17 4.5. Research critique and some notes on validity and reliability..................................................... 19

5. Theoretical exposition ........................................................................................................... 21 5.1. Strategic Technology Management............................................................................................ 22 5.2. Strategic Human Resource Management ................................................................................... 29 5.3. Strategic Intellectual Resource Management framework .......................................................... 37 5.4. The Product Development Process ............................................................................................ 41 5.5. Key determinants in the product development process.............................................................. 42 5.6. Intellectual Resource Alignment................................................................................................ 47

6. Analysis: The case of NordNav Technologies......................................................................... 59 6.1. Business growth ......................................................................................................................... 59 6.2. Resources ................................................................................................................................... 61 6.3. Strategic Technology Management............................................................................................ 63 6.4. Strategic Human Resource Management ................................................................................... 65 6.5. Strategic Intellectual Resource Management............................................................................. 66 6.6. Product development.................................................................................................................. 66 6.7. Organisational Blueprint ............................................................................................................ 68 6.8. Developing Intellectual Resources............................................................................................. 70

7. Conclusions ........................................................................................................................... 74 7.1. The conceptual framework revisited.......................................................................................... 74 7.2. General conclusions ................................................................................................................... 75 7.3. Specific conclusions regarding NordNav Technologies ............................................................ 79 7.4. Research questions revisited ...................................................................................................... 82

8. Discussion.............................................................................................................................. 84 8.1. Reflections on the study............................................................................................................. 84 8.2. Reflections on further research .................................................................................................. 84

9. References ............................................................................................................................. 86 Appendix 1. NordNav Technologies .......................................................................................... 94

A-1.1. Background and History ........................................................................................................ 94 A-1.2. NordNav’s external environment........................................................................................... 94 A-1.3. NordNav present situation ..................................................................................................... 97 A-1.4. Company culture.................................................................................................................. 101 A-1.5. NordNav and partnership..................................................................................................... 101 A-1.6. Management interview ........................................................................................................ 102


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Tables Table 3-1: Characteristics over different Dynamic Capitalism Typology (Saemundsson, 1999) ........... 8 Table 4-1: The Eight Hallmarks of good scientific research (Whitelaw, 2001).................................... 20 Table 5-1: Four different schools of technology management (Drejer, 1996)...................................... 23 Table 5-2: Five factors that influence technology strategy in SME’s (Jones & Smith, 1997). ............. 26 Table 5-3: Two extremes of technology design (Saemundsson, 2003).................................................. 26 Table 5-4: The basic differences between Staff Management and SHRM (Rogers, 2001).................... 30 Table 5-5: Blueprint for success; mode of attachment and characteristics (Baron and Hannan, 2002).

...................................................................................................................................................... 32 Table 5-6: Description and characteristics of the project portfolio matrix (Matheson & Matheson,

1989). ............................................................................................................................................ 44 Table 5-7: The VRIO framework for evaluation the competitive implications of firm resources and

capabilities (Kangas, 2000).......................................................................................................... 48 Table 5-8: Organisational blueprint for success, attachment and selection (Baron & Hannan, 2002).

...................................................................................................................................................... 52 Table 5-9: Perspectives on competence development (adapted and translated from Ellström, 1997). 56 Table 5-10: Employments blueprints including coordination and control (Baron and Hannan, 2002)57 Table 6-1: The VRIO framework with analysis on NordNavs most important internal resources ....... 61 Table 6-2: NordNavs resources ............................................................................................................ 62 Table 6-3: NordNavs Modus Operandi of the five factors which influence corporate technology

strategy[see also Appendix 1] ...................................................................................................... 64 Table 6-4: How NordNav works with the critical success factors affecting the product development

process [from chapter 5.5] ........................................................................................................... 67 Table 6-5: NordNavs organisational blueprint, with NordNav position in grey. ................................. 69 Figures Figure 3-1: External and internal factors shape the firm (Own) ............................................................ 7 Figure 3-2: Dynamic Capitalism Typology (Saemundsson, 1999) ......................................................... 8 Figure 3-3: General barriers to growth according to Barth (1999). ...................................................... 9 Figure 3-4: Core resources and core process in New Technology-Based Firms (Own). ..................... 11 Figure 3-5: Bridging the gap between strategic technology management, strategic human resource

management and small firm management (Own). ........................................................................ 12 Figure 5-1: Bridging the gap between strategic technology management, strategic human resource

management and small firm management (Own). ........................................................................ 21 Figure 5-2: Focus of thesis in relation to procurement and deployment perspective (Own)................ 22 Figure 5-3: The stages of development of in technology management (Adapted from Drejer, 1996). . 23 Figure 5-4: R&D and the Strategic Decision Hierarchy (Matheson & Matheson, 1998) .................... 25 Figure 5-5: R&D divided into two parallel strategy activities; research one side, and development on

the other (Adapted from Matheson & Matheson, 1998). .............................................................. 27 Figure 5-6: Technology gap as a result of technology demand and technology supply in the Market-

Product/process-Technology chain (Own). .................................................................................. 28 Figure 5-7: The stages of development in human resource management (Guest, 1987, Roger, 2001,

and inspired by Drejer, 1996). ..................................................................................................... 29 Figure 5-8: Alignment model -HR strategy and strategic planning (adapted from Briggs & Keogh,

1999)............................................................................................................................................. 31 Figure 5-9: Different organisational blueprints impact on a companies performance according to

Baron and Hannan (2002). Engineering blueprint set to 0 as a reference point. ........................ 33 Figure 5-10: Aligning human capital to business (adapted from Davison, 2002). ............................... 34 Figure 5-11: The determinants of the internal labour market (adopted from Ellström, 1992)............. 35 Figure 5-12: Compensate/Complement strategies for different level and range of competences (from

Ylinenpää, 1997)........................................................................................................................... 36 Figure 5-13: The merged SIR-Management framework in a wider context (Own). ............................. 38 Figure 5-14: SIRM-hierarchy; the merging strategic technology management and human resource

management views (Further developed from Phaal et al., 2001)................................................. 39


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Figure 5-15: Intellectual resource gap within technology and human resources................................. 39 Figure 5-16: Core resources and core process in New Technology-Based Firms (Own). ................... 40 Figure 5-17: A generic development process as a core process (Pileman, 2002)(Own)...................... 41 Figure 5-18: Critical success factors affecting the product development process (inspired by March-

Chorda et al. 2002)....................................................................................................................... 42 Figure 5-19: Project portfolio matrix (Matheson & Matheson, 1998). ................................................ 44 Figure 5-20: Market alignment in the Market–Product/process–Technology chain (Own)................. 45 Figure 5-21: Intellectual resource gap within technology and human resources................................. 47 Figure 5-22: Acquisition or development; two ways of filling the technology and competence gap.... 48 Figure 5-23: Some typical acquisitions of technology and competence ............................................... 49 Figure 5-24: Acquisition of external technology/knowledge matrix. The shaded area represents

situations where those R&D is best kept within the firm (Trott, 1998) ........................................ 50 Figure 5-25: Technology acquisition: How different acquiring strategies are associated to

organisational integration (Source: Trott, 1998). ........................................................................ 51 Figure 5-26: Some typical technology and human resource development. .......................................... 54 Figure 5-27: The organisational learning process (Adapted and translated from Berglund &

Blomquist, 1999)........................................................................................................................... 57 Figure 6-1 Dynamic Capitalism typology; with NordNav’s present and preferred situation............... 59 Figure 6-2: A generic development process (Pileman, 2002) (Own).................................................... 67 Figure 6-3: 2 types of competence deficiency ....................................................................................... 72 Figure 7-1: Bridging the gap between strategic technology management, strategic human resource

management and small firm management. ................................................................................... 74 Figure 7-2: Two important theoretical assumptions; SIRM-hierarchy and critical success factor for

the product development process (Both figures own)................................................................... 75 Figure 7-3: A model for aligning technology research and development with corporate and business

strategy [from chapter 5.1.4]........................................................................................................ 76 Figure 7-4: Aligning human capital to overall business goals [from chapter 5.2] .............................. 76 Figure 7-5: Critical success factors affecting the product development process [from chapter 5.5]... 77 Figure 7-6: Range and level of competencies (Ylinenpää, 1997) and the orgnaisational learning

process (Berlund & Blomqvist, 1999). ......................................................................................... 79 Figure A-1: Triangulating with three known signals.. .......................................................................... 95 Figure A-2: Market forecast by regions................................................................................................ 96 Figure A -3: NordNav's organisations today ........................................................................................ 99 Figure A-4: Example of NordNav’s Master plan ................................................................................ 100


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1. Introduction

The opportunities for potential entrepreneurs are unlimited. The constantly changing economic environment provides a continuous flow of potential opportunities.

-Kutatko & Hodgetts (1998, p 23) Over the recent years there has been a rise in public interest in newly developed companies. A number of studies indicate that there has been a structural shift in the economies of the OECD countries from large companies competing through mass production and economies of scale towards smaller companies relying on knowledge, initiative and flexibility (ITPS, 2003:005; Liao, et al, 2003; Commission of the European Communities, 2003:I; Mariotti & Piscitello, 2001; Autio, 2000). In all, one could say that the structure of western society has changed in such a way that innovations and new companies are becoming increasingly important for the economy. Some call this the ‘new economy’ –a knowledge economy where skills, knowledge and innovativeness have become the prerequisites for success. As the pace of technological progress has increased, so have the number of start-ups set on capitalizing on this development. Porter regards technological change as a principal driver of competition and the mayor creator of industrial change (Porter, 1985). New technology-based firms are often created around an invention and with the help of their speed in the innovation process, and they are also the first to introduce new technologies. Unfortunately, only a few of these ventures turn out to be truly successful as most companies fail within the first years of operations (ITPS, 2003:005; Wiklund, 1998; Klofsten, 1992). This is unfortunate, not only for the brave entrepreneurs, but also for our collective development. Small and medium sized firms are crucial in the creation of new jobs as well as developing new innovations and even new industries (Wiklund, 1998; Rickne, 2000). So, why do so many new ventures fail? While small firms can take advantage of new technologies quicker by overcoming the inertia built into large corporations, they also face a unique set of challenges, for an example lack of resources, lack of management skills, lack of market channels etc. These challenges can be both specific to the industrial context and more universal in nature, but can also be divided into internal and external challenges, where the management of the internal challenges will determine how the company meet the external challenges. People involved in management of small companies are by understanding these challenges better equipped to manage the growth of small companies. Small companies, and especially new technology-based firms, are often created with a set of few strong resources (Barth, 2003; Friis, et al., 2002; Kelley & Rice, 2001; Athanasios, 2000; Autio, 2000; franklin & Wright, 2000; O’Gorman, 2000; Bantel, 1997; Smilor, 1990). These resources can be the foundation for the future success if properly managed and matched to the external challenges and environment. For many managers within small companies the question is then: “How do I manage our company’s key resources for success?” This thesis will make an attempt at uncovering the management of key resources by using a literature study combined with a case study. The authors will carefully scrutinize a recently started high-tech firm, NordNav Technologies, where several insights and frameworks will ultimately emerge. NordNav is used as a reference point during the work of building a wider framework around newly founded high-tech firms in the explorative problem area and theory-related chapters. The analysis and the conclusions are also closely based on NordNav Technologies in order to make relevant statement for NTBF’s in general.


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2. NordNav Technologies The NordNav case study is used as a point of reference while exploring appropriate theories and problem areas for further exploration. This chapter about NordNav is used to provide a mindset on NordNav and some particulars of newly founded firms. NordNav Technologies is more thoroughly described in Appendix 1 but since NordNav has influenced the problem area development in such an extensive way, is it important that the reader get a brief understanding of the firm and the context of being a newly founded company before continuing to the problem area.

2.1. Brief background of the company NordNav is a result of a research program that started at Luleå University of Technology (LTU) 1999. The research project was very successful and during 2001 the group presented the first functioning real-time Global Positioning System (GPS) software receiver ever. This success motivated the core group to start a company based around the groundbreaking technology and during the summer 2002 they founded NordNav with the aim developing and licensing complete software receivers for Satellite navigation. NordNav Technologies is a company set on growth but that is currently facing several considerable challenges.

2.2. The external environment The Global Navigation Satellite System (or GNSS) market is in the year 2003 estimated to have annual revenue of 14 billion dollar (Robroek, 2003). The satellite navigation/positioning system allows for the geographical positioning of objects, people, etc. on the planet. The GNSS market is an emerging market and new applications and scenarios for GNSS navigation and positioning are constantly invented. In the future, many consumer devices, as cellular phones or cars, will be equipped with GNSS receivers. For example, market forecast claims that cars and cellular phones will annually contain 2 billion GNSS receivers in 2020 (Styles et al., 2003). The GPS market, the largest segment of the total GNSS-market, has an annual growth of 20-25 % over the last 4-5 years, and this growth is even estimated to increase in the future. The main market driver today is the possibility to develop GPS receivers which are very small and consume very little power. These above figures certainly show that there exists a huge potential in the GNSS marketplace. However, as in all emerging market there are a lot of new companies trying to get a share of it. The common estimation is that there are over 500 companies in the world working with GPS and during the last three to four years there have been four to five companies that started with the only one focus; to get their GPS solution into cellular phones. The question for NordNav is “what is needed for them to succeed as a small and newly founded firm in this market?”


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2.3. The present situation The technology that the NordNav Technologies developed was first shown feasible in the year 2001 by the founders of the firm. At that time, no-one believed that the technology would be available for yet some time. However, today there are many other research groups trying to achieve similar results as NordNav did back then. So far NordNav has apparently been able to keep their lead to other groups and they are the only company who has presented a fully functioning real-time software technology. NordNav Technologies currently sells and distributes the product NordNav R20, which makes NordNav the first company that sells GNSS receivers based on complete software solutions. The NordNav R2X family is a small volume receiver product family that is targeted towards research and development groups that conduct research on GNSS. The market for this product is very limited, but the chosen setup with a basic receiver that could be extended with future features, enables additional sales to the same customers. The next product line that NordNav has planned to develop, NordNav E2X, is a version designed to run on embedded processors such as microprocessors in cell phones, cars and similar consumer devices. Today NordNav has two offices, the head office is located in Luleå and a small branch office is located in Stockholm. Future product development and support department will be located in Luleå (and maybe near large customers).The Stockholm office will mainly deal with sales and marketing. The management team of NordNav consists of a General Manager, a Chief Technical Officer (CTO) and a Business Manager. The development group consists of the CTO and a developer. They work in close co-operation with two founders that have an unofficial role in the company as technical advisers. NordNav started with a small number of employees but has managed to build up a large network of senior advisors that could help the company in the different stages of the start-up process. NordNav Technologies face numerous challenges as a small newly founded firm in a high-tech setting. The market is seemingly there, but issues such as what products to develop and how to develop them; what people to hire and how to select them; what business model to chose and how to implement them, etc. are still waiting to be answered. Simplified, the firm needs to analyse what the critical success factors are and how these factors can be managed in the best possible way to ensure future growth.


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3. Problem area development

Small opportunities are often the beginning of great enterprises. -Demosthenes (384BC-322BC)

All companies are unique and operate in a unique context. However, there are also several aspects that many companies have in common. In order to better understand the unique context of NordNav Technologies a brief introduction to a general problem area is in order. In effect this chapter serves as a demarcation of the further study insofar as it points to the theoretical bases of the conceptual framework which is constructed in subsequent chapters. The problem area explores a special form of organisation, namely the new and small technology-based start-up and look at some critical issues that this special form of organisation encounters. New and small technology-based firms are then analysed from the perspective of general and specific barriers to growth, as well as the unique resources and capabilities that found the basis of their competitive advantages; technology and competence. These concepts will then be used to build a framework around firm development and to answer the research questions posed by NordNav Technologies.

3.1. The technology-based start-up As new technologies emerge and the pace of technological progress increases the world will see a continuous flow of novel innovative firms set on conquering the new markets as they are created. Kutatko and Hodgetts (1998) claim these opportunities are unlimited and the undisputed fact is that, Small and medium sized enterprises (or SMEs) have come to play an increasingly important role in the economy (ITPS, 2003:005; Commission of the European Communities, 2003:I; Liao, et al, 2003; Friis et al., 2002; Meyer, 2002; Mariotti & Piscitello, 2001; Autio, 2000; Wilkinson, 1999; Rylander, 1995). However, SMEs have not always received attention from academia, and even less interest has been directed at the newly founded firms (Wiklund et al., 2003; Klofsten, 1992). This is somewhat puzzling as start-up and early development are critical phases in the firm’s life and results of decisions and actions taken at this stage strongly affects the continued development of the firm. It can also be argued that all firms are new at some point. The few studies that have been conducted have often focused on the entrepreneur (Davidsson &Wiklund, 2001; Wiklund et al., 2003). There are significant differences in small firms versus large firms regarding innovative activity across industry sectors. According to Friis et al. (2002) small firms tend to innovate in relatively unexplored fields of technology whereas large companies concentrate their research in more established areas. At the same time empirical studies shows that high-tech firms and younger firms grow faster than lower tech and older firms (Autio, 2000; Sapienza et al., 1998). This has led to the development of theories surrounding the New Technology-Based Firm (or NTBF). The term technology-based is somewhat vague, but one can see it as companies that utilize technical knowledge for a commercial purpose. High-tech companies are usually found in such industries as computer science, electronics, medicine, etc. In these technology-intensive environments entrepreneurial activity often arises out of technological advances, rather than from recognition of new particular market opportunities (Kelley & Rice, 2001).


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To commercialise on technological advances the entrepreneur has to take the inventions through the innovation process. The innovation process is made up of three elements; the invention, the technology or discovery; the innovation, the introduction to the market as a product or an offering; and finally the diffusion, the spreading of the product (Saemundsson, 1997). The innovator or NTBF is first or early to commercialise, but not necessarily the inventor of the technology. It is important to differentiate between different types of small firms. According to Marc Meyer (2002) there are two generic types of start-ups; the Micro-business, and the Venture. The micro-business starts small and stays small; the venture starts small but grows fast, often based on technology intensive products and services (Meyer, 2002). The micro-business is often started with personal or family-money aimed at a local market while a venture is founded by engineers and experienced people leaving big companies intent on dominating a niche. By understanding the different motivations that stimulate firm creation, it also makes it easier to understand and anticipate the future direction of the firm. Firm development is the goal of many firms. However, as discussed previously, many ventures fail soon after being started. But why do firms fail? There is strong evidence that there exist some different barriers to growth, both within the firm and in the external environment.

3.2. Barriers to growth In order for a company to progress, that company must be able to manage and balance a great number of factors, both internal and external. Typical external factors are market dynamics, such as environmental features and trends, while internal factors mainly focus on the organisational development of the company itself. The shape of the firm is decided by the varying nature of these factors [Figure 3-1]. For newly started companies, these issues are more acute than in companies with proven track-records, as routines and activities to face these forces are in the process of being established from scratch.

The environment

The firm

Internal factors

External factors

The environment

The firm

Internal factors

External factors

Figure 3-1: External and internal factors shape the firm (Own)

The most universal internal barrier to growth in a small firm could be said to be growth itself. This is because growth implies change, and change is one of the major challenges facing the small firm. It implies managing a larger organisation, finding the right people, abandoning existing routines and taking new responsibilities. So, all kinds of growth might not be good. The remark by Porter that “rapid growth tends to mask strategic errors” (Barth, 2003), also illustrates the complexity of growth. This implies that even though all evidence seems to point at successful management strategies being implemented, this may not be the case at all. Positive external conditions may blind us to the shortcomings of the firm. This may be why


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small firms are portrayed as often excelling in the early stages of an industry when product standards are still in a fluid state, when competition is based on new features, when turnover is high, and when competition is based on new features (Cooper, 2000). As soon as these favourable conditions change however, the small firm may be ill equipped to handle the new situation. The venture, as described by Marc (2002) is by definition set on growth, but there are different ways to grow. For example, growth can be measured in number of employees, increased sales, increased profitability, geographic expansion, or through increasing assets. Whatever metrics that is used to measure growth, Kirchhoff’s “Dynamic Capitalism Typology” (Saemundsson, 1999) [Figure 3-2] can be used to make a distinction between four different groups of firms; economic core, ambitious, constrained growth or glamorous, based on their innovation rate and growth rate.

CONSTRAINEDGROWTH GLAMOROUS

ECONOMIC CORE AMBITIOUS

Self constrained

Resourceconstrained

High

Low

Low High

Business Growth Rate

Business Innovation

Rate



Self constrained

Resourceconstrained

High

Low

Low High


Business Innovation

Rate

Figure 3-2: Dynamic Capitalism Typology (Saemundsson, 1999)

The model illustrates that high innovation rate does not necessarily imply a high growth rate. The four different dynamic Capitalism typologies above will all have different characteristics which will explain their willingness and prospect to growth (see Table 3-1). Table 3-1: Characteristics over different Dynamic Capitalism Typology (Saemundsson, 1999)

Dynamic Capitalism Typology

Characteristics

Economic Core

Such firms begin with one or a few innovations and show some initial growth after formation, but they never grow large. Often they have no intention of growing and measure success in the firm’s ability to survive and provide income for the owner.

Ambitious

These are firms that base their growth on a single of a few innovations but that have recognised an opportunity which have allowed it to grow substantially during a short time. However, these firms will eventually decline as a result of their low innovation rate.

Glamorous Growth in these firms is founded on one or several innovation and then further accomplished by introducing innovation after innovation thereby creating new demand and long-term growth.

Constrained Growth

The growths of these firms are constrained by factors outside of the innovation process. Self constrained are constrained by the entrepreneurs themselves (fear of loosing control etc) and resource constrained firms lack the necessary resources (like time, capital, personnel, information etc.). The firms in this position must overcome their constraints quickly as innovation is an expensive process that will soon exhaust their limited resources.


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Kirschhoff shows that although a firm may want to belong to the “glamorous” segment there are several pitfalls that can hinder such an endeavour. A firm that looks successful may turn out to be a “one-hit-wonder” once the initial growth has subsided, and firm that do manage to be innovative will inevitably experience other constraints that must be overcome. The resource and self-inflicted constrains that Kirschhoff presents (in Saemundsson, 1999) give a somewhat blunt description of the barriers of growth. Instead, Barth (1999) has developed a simple model explaining general barriers of growth that set internal and external barriers to growth against tangible and intangible factors [Figure 3-3]. He proposes that the internal barriers consisting of lack of systems and routines as well as the lack of competence and resources should be described as Managerial and Resource Barriers. External tangible barriers, or Institutional Barriers, are problems with financing and unfavourable legislation. External intangible barriers, referred to as Cultural Barriers, are concerned with attitudes towards entrepreneurship, problems attracting skilled labour that wants to work for a small firm (Barth, 1999).

Nature of barriers to growthTangible barriers Intangible barriers

Orig

in o

f bar

riers

to g

rowth

Managerial and Resource Barriers

Institutional Barriers Cultural Barriers

Internal

barriers

External

barriers

Figure 3-3: General barriers to growth according to Barth (1999).

Often the internal factors are forgotten and instead it is the external factors that receive the attention of academics and decision-makers; both within small companies as externally. A survey on the small business sector in Sweden (Företagarna, 2003) tell us that the primary barriers to growth is market demand, employee shortage, the owners willingness to grow, labour legislation, no available venture capital, and high interest rates; all external barriers. When looking at external barriers there are several findings that show that external forces tend to have a bigger impact on small businesses than on large businesses (Kelley & Rice, 2001; Smallbone & Wyer, 2000). The internal barriers to growth are largely ignored in studies like the one from Företagarna above (See also ITPS,2003:005 for another study on growth that mainly concerns itself with external barriers). This may be because academics and decision makers often have a top-down approach economic to small business management. Research institutes focus on the growth of industries and not the growth of individual firms and it is therefore natural for them to address issues on that level. However, this is unproductive, especially in light of empirical studies that have shown that business and corporation specific factors account for a larger part of variations in return than industry factors do (Caloghirou, et. al, 2004; Foss, 2003). Foss claims that this proves that factors internal to the firm are more significant than environmental factors.


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According to Grant (1991) it is the resources and the capabilities that are the primary factors upon which a company build its identity and strategy. These resources are therefore the primary sources of a firm’s success. Understanding the relationship between resources, capabilities, competitive advantage, profitability and especially how competitive advantage could be sustained over time, is essential for a company. This understanding could be used to design strategies which exploit each firm’s unique characteristics with a maximum effect and thereby overcoming the barriers of growth.

3.3. Resources and capabilities Since start-ups are small firms, it entails that the number of employees are limited and the core competence is often concentrated around a very few numbers of resources. Resources can include both tangible (physical, such as buildings, but also finances) and intangible (non-physical, as reputation, knowledge etc.) assets of the firm (Athanasios, 2000). Small start-ups often have problems with financial matters as their short track-record make banks and investors cautious. As a consequence, newly founded firms can often only focus on one project at a time, making them more vulnerable to changing market conditions. This is supported by a Greek study that shows that financial and marketing competencies, together with transformation capability are the factors significantly affecting the performance of small manufacturing firms (Caloghirou, et. al, 2004). This lack of internal resources in the early stages of firm development forces the organisation to prioritise the internal resources and focusing on finding the right capabilities, competitive advantage and finally the wider strategy (Klofsten & Lindholm Dahlstrand, 2000; Cooper, 1994). Over the long run competitive advantage in a firm stems from building up core competencies which are superior to those of rivals. According to Boxall (1999) it is a firm’s ability to learn faster and apply its learning more effectively that gives it an competitive advantage. Still, competitive success does not come simply from making choices in the present; it stems from building up distinctive capabilities over significant periods of time. Da Silveria (2002) talks about capabilities as a dynamic ability, which concerns the ability to continuously adapt and integrate the set of skills, resources and competencies of the firm in the face of an ever-shifting competitive environment. Dynamic capabilities enable firms to adapt resources and other capabilities to create new sources of competitive advantage and explore market opportunities (Da Silveria, 2002). However, a company does not necessarily know which resources are part of their ‘core competencies’. One way of assessing the capabilities, the critical resources of the firm, is to expand on Hills concept of order-winning criteria (Hill, 1995) in terms of company resources. Order-winning criteria are the decisive factors that allow a company to do business, or partner, with customers and other companies. By looking at these order-winners the relation between internal resources and external requirements and demands become clearer. In the case of New Technology-Based Firms, which often are very technology driven, the technology assets such as patents, source code etc are central to operations. Another core asset is the employees with the know-how and personal qualities to succeed in innovating for the market. Thus, two distinct order-winning criteria, or core resources, become apparent:

• The expert knowledge of the employees • The innovative technology


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Together these assets constitute the foundation of the company and must be properly managed to ensure future success, a notion supported by many scholars (a selection includes Banerjee, 2003; Kelley & Rice, 2002; Neck et al., 2002; Krogh et al. 2001; Autio, 2000; Danneels, 2000; Heneman et al. 2000; Briggs & Keogh, 1999; Bantel, 1998; Autio & Garnsey, 1997; Dyer & Reeves, 1995). Competence and technology are deemed to be of special importance for the small technology-based firm. This fact is implied in numerous studies but few researches have studied this phenomenon in a specific new start-up setting (Neck et al., 2000). There are as yet no frameworks that encompass both the strategic management of technology and the strategic management of knowledge in a small firm context.

3.4. Conceptualising technology and competence As seen in the previous chapter, when a New Technology-Based Firm starts its journey towards business growth, it often starts with the exploitation of two major resources, the innovative technology that the company is based on and the competence of the people that are working within the company. However, gradually the company must to elaborate the original resource and also construct more resources in the form of patent and product portfolios, brand recognition, business intelligence (knowledge of the external environment, customers, etc.), financial security, and so on, into the company. In an emerging market with many new concepts on how to enter the market and capitalise on the novel business possibilities, there will be many firms that earn money independently of how they handle their resources (as previously stated by Porter, 1980). However, in the long run when the market matures it is the companies that handle the competences and technology in the most efficient way will be the most successful. Saemundsson (1997) used the term innovation process in Chapter 3.1 for the bringing of products or offerings to the market. This process of generating business opportunities out of a firm’s core resources could be labelled as the firm’s core process. Simplified, business generation is the core process of all profit-seeking firms [Figure 3-4]. The core resources and the core processes are naturally closely related as neither can add any business value without the other. So, in order to maintain a high business innovation rate both of these core resources must be continually developed and improved.

Core resource

Core process

Core resource

BUSINESS GENERATION

Competence

Technology

Figure 3-4: Core resources and core process in New Technology-Based Firms (Own).


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To manage technology and competence resources in new technology-based firm three major theoretical paradigms must be merged; Technology resources are handled by technology management theories, Competence resources are handled by human resource management theories, and small firms are discussed in the entrepreneurial and small firm management and growth literature. This thesis will attempt to construct a conceptual framework where these three paradigms intercept [Figure 3-5].

StrategicTechnology Management

StrategicHuman Resource

Management

Small Firm Management

Conceptualframework



Management


Conceptualframework

Figure 3-5: Bridging the gap between strategic technology management, strategic human resource management and small firm management (Own).


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3.5. Research purpose and questions

The mere formulation of a problem is far more often essential than its solution… To raise new questions, new possibilities, to regard old problems from a new angle require creative imagination and marks real advances in science.

- Albert Einstein The purpose of this study is to help NordNav Technologies, a New Technology-Based Firm, with their business and organisational development. In Chapter 2 a question is phrased on the behalf of NordNav; “What are the critical success factors for growth and how should they be managed?” By ascertaining that technology and competence are the two most critical resources in New Technology-Based Firms, the first part of this initial question is answered; “what?”. Technology and competence have been found to be the most important internal factors that limit growth. The purpose of the following chapters is to determine the second, and more complicated, question; “how?”. More specifically, the research problem could be broken into several smaller research questions:

How can existing theories help explain the relationship between the core process and the core resources in New Technology-Based Firms, and NordNav Technologies in particular?

What approach should New Technology-Based Firms, and NordNav Technologies in particular, have towards developing their core resources?

What theoretical models should be used by New Technology-Based Firms, and NordNav Technologies in particular, to determine activities associated with managing core resources?

To answer the questions above a conceptual framework is developed in Chapter 5 and analysed from the perspective of NordNav Technologies in Chapter 6. To supplement these general questions NordNav Technologies have also requested that some specific questions be answered. The theoretical framework developed above will therefore be widened in such a way that it can be used to answer these questions as well.

How should NordNav Technologies strategically handle R&D and how should NordNav Technologies strategically handle product development? What gives the most value to the company; strong products or strong R&D? Partnership in technology – How can technology networks be utilized by NordNav to strengthen the company.

Which Organizational model should be used by NordNav Technologies? Small companies often have problems when they start growing since there is no real plan on how to grow and what organization to use.

How should NordNav Technologies strategically build its competence base? What should be “insourced” and “outsourced” - What competences could be used as consultants and which competences must be in the company? How should NordNav Technologies develop their employees so that they remain in the technology forefront?

How should NordNav Technologies handle the relationship “right person” and “right competence?” Should the company hire the “best person” or the persons that cover exactly the competence that is needed?


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4. Methodology

It can be argued that many of the greatest contributions to economic theory are logical rather than empirical

-Randall Westgren and Kelly Zering (1998)

4.1. Research purpose Developing theory and frameworks that can explain specific company dynamics should be a top priority in management research. Unfortunately companies often find existing theory to be either too general or too specific in nature to be properly adopted by company strategists. Firms operating in the small business sector have an especially hard time finding relevant and useful research that can explain their business and help them improve their operations. The study leading to this thesis was initiated by NordNav Technologies and directed towards some general and some specific issues and questions. The main purpose of this thesis was therefore to analyse NordNav and NordNav-specific internal problems in particular. It is important to keep this in mind as the subsequent research choices derive from this perspective. As such, the aim of the study is not to make generalisations or testing certain hypothesis but to expand and develop knowledge within a particular area and make that knowledge applicable to NordNav. This does not mean that generalisations and predictions will not be attempted, but that answering questions specific to NordNav Technologies and their position is the focal point of the thesis. A higher purpose is to expand the general knowledge of new technology-based firms and the critical factors that in Chapter 3 was found to dictate their operations. Summing up, there are two objectives that this thesis will try to incorporate.

1) Supplying NordNav Technologies with valid guidance on future organisational development concerning competence and technology management.

2) Creating a theoretical framework for organisational development of newly started high-tech firms concerning competence and technology management

These two opposing conditions imply that the choice of research approach and method is vital to the relevance of the thesis. Valid and novel research versus straightforward business recommendations are often hard to merge and therefore action-based research within a case-study was chosen as the best research approach.

4.2. Research approach The study on which this thesis is based is both exploratory and descriptive in nature as it mutually tries to investigate certain areas of organizational challenges for a special company in a special situation as well as efforts are made to present a framework of existing theories. In order to succeed with this, it is not just simply the case of using existing theory and then doing an empirical study. There are no formulations of hypothesis as there is no straightforward way of testing these. However, conclusions are made in the respect that theories around small and medium sized firms, Strategic Technology Management and


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Strategic Human Resource Management, are used to predict successful organisational behaviour in the specific case of NordNav Technologies. Instead of simply testing or verifying existing theories in a growing firm-setting, more of a grounded theory approach has to be used to extract new theories, around the combination of technology and human resource management in small firms, from existing data. Grounded theory does not test a hypothesis but aims to understand the research situation and discover the theory implicit in the data (Langemar, 2003, Dick, 2002:II). Grounded theory is therefore considered an emergent approach as understanding develops during the research process. Following the ideals of grounded theory the empirical investigation is initiated at the beginning of the study to find critical areas for later theoretical consideration. The aim is to come as close as possible to the daily operational reality of NordNav Technologies. One special aspect of this study is the researchers’ involvement in NordNav’s operational activities in conjunction with pure research activities. There are several advantages of being embedded in the company that is being studied. Ferguson (1999) has identified several of these advantages: Accessibility to important people and documents concerning the firm Credibility, as the researchers are known to the firm as contributing employees Trustworthiness, as there is little chance that the results will be misused Familiarity with the research context, the company and the personnel There is also a more personal side to action research which is that both the commitment and personal interest in the research is higher than other types of research (Ferguson, 1999). It was mainly because of the advantages suggested by Ferguson that NordNav Technologies was initially chosen as the object of analysis. Because of the specific situation of this study, brought about by the researcher’s deep involvement with the company, the research could be labelled as action research. Action research is a methodology that pursues action (direct involvement) and research (studying the results) at the same time (Dick, 1999). Action research is an emergent iterative process which takes shape as the understanding of a context increases. It is therefore useful in situations where it may be too difficult to control variables; for example in situations which are “concrete, complex and on-going” (Dick, 2002:I). These activities are part of an iterative process that aims at a better situational understanding. The action research process is often described as a spiral as the action and research activities tend to be cyclical and in constant progress (Ferguson, 1999, Dick, 1999) [Figure 4-2].

Action

Research

Research

Action

Figure 4-2: Action-Research spiral as described by Ferguson (1999) and Dick (1999) Although action research is a research method mostly suited for practitioners and consultants it is also useful to use in a situation where the researchers cannot remain a neutral observer (Ferguson, 1999).


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Action research fits perfectly as a research approach for looking at NordNav Technologies under the current circumstances; especially as it balances both the practical requirements by NordNav and the academic requirements of the thesis.

4.3. Research method Copy from one, it's plagiarism; copy from two, it's research.

-Wilson Mizner The primary research method of choice for this study is a case study. This is because a case study focuses on “understanding the dynamics present within a single observed setting” (Eisenhardt, 1989). Doing a case study is also the most natural way of doing action research within an organisation. There are also some other methods that are used in this thesis. A thorough literature review of small firm management, technology management, human resource management and several interviews with persons within NordNav, provide an appropriate triangulation as well as important aid in fulfilling the research purpose.

4.3.1. Case studies: According to Yin (2003, p13) a case study is an “empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. Looking at the research questions posed in the previous chapter a case study is the clearly the best way to go about answering these. Nicky Hayes (2000) claims that there are several advantages of a thorough case study over other observational methods: Stimulating new research

A case study highlights unique situations, processes and behaviour. As existing theoretical models often cannot account for all questions raised by the case study, new research is stimulated.

Contradicting established theory Case studies sometimes challenge established assumption as these often come from generalised theories that do not explain a specific situation.

Giving new insight into phenomena or experience The exploration of a single case allows for greater detail and richer information mining.

Permitting investigation of otherwise inaccessible situations Case studies allow for the studying of complex processes that could never be engineered in a laboratory or a controlled setting.

All of these method advantages mentioned above are in compliance with the two overall research purposes of the thesis. However, there are also some disadvantages of case study research method that must be noted. The most apparent problems are that the uniqueness of a case study may limit replicability and that it is difficult to generalise from the results of case-studies as the process studied may be very atypical (Hayes, 2000). Subjectivity is also a problem as the complex data gathering and summation may enhance fallacy for biases. Yin (2003) states that it is the lack of specific procedures for conducting case studies that often cause case studies to be sloppy and biased.


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4.3.2. Literature review: By going to existing theory and literature about small firm, technology and human resource management and using these to explore the problems encountered during empirical excursions it is easy to get an opinion on whether the initial problem definition is correct or not. However, literature and secondary sources of information are associated with two major problems; Comparability and reliability (Arbnor & Bjerke, 1994) Comparability Previous data may have been gathered for other purposes or may be incomparable for other reasons, such as the use of different definitions. To counter this, great lengths were used in order to find the most relevant literature. Small business and NTBF literature dealing with technology and human resource management was particularly hard to come by. Reliability Previous data may be incorrect. The analytical reasoning may be flawed or mistakes may have been made during the data gathering. In any case it is important to understand the reasoning behind any reports or articles. To ensure that the data used was reliable the majority of the theoretical literature was gathered from accepted and peer-reviewed journals. The most cited and established researchers were also especially checked upon. According to Ferguson (1999) it is common in action research studies for the ‘literature review’ to be scattered throughout the study rather than written up in one chapter. However, this particular thesis does contain the traditional theoretical chapters where the problem area is discussed and where the theoretical paradigms are explored. Internal documents concerning NordNav, such as business plans, product descriptions etc, are not seen as part of the literature review. This certain kind of material is seen as part of the case study and is presented in Appendix 1 as deemed important.

4.3.3. Interviews: Personal interviews and limited small surveys were used to gather extra information during the extent of the NordNav case study. Interviews in general could count as part of the case study methodology, but some of the interviews used here are somewhat separate in kind and merit mentioning. Several interviews where done at the end of the study and after the analysis and conclusions had been finished. The main purpose with these interviews was to get a cross correlation with observations from the case study. Because of this, there no separate interview guides or minutes from interviews in the report. Instead, all findings are integrated in Appendix 1 and regarded as a part of the case study.

4.4. Research process The work with this thesis has stretched on for almost one year. Because NordNav Technologies at the time of the thesis completion had been a registered company for only 16 months the authors have had a unique chance to study an emerging organisation. Parallel to this the researchers have worked for the company in daily operations.


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In the same way that the company has emerged during these months the same can be said about the thesis itself. In order not to complicate the understanding of the research process the study can be said to have taken place in four mayor phases. 1. Case-study in company to discover critical areas. 2. Literature-review to explore theoretical data concerning the critical areas 3. Action-based research to develop emerging theories and explanations of critical areas 4. Merging of theories and final interpretation of all data. In line with the action-based approach the distinctions between these phases are not always clear cut and it is difficult to say when one phase progresses into another phase.

Phase 1: Case-study The project started with an in-depth case study of NordNav Technologies involving the industry-market context, the people involved within and outside of the company, the resources employed by the company, the history and previous distinct actions, the research and development and the policies and other work descriptions to get a complete image of the company and its problems. The goal was a full understanding of NordNav and the context in which the company operates. During this phase the problem area was loosely defined and an array of general and specific research questions was gathered.

Phase 2: Literature-review The second stage of the project consisted of reading up on literature that was deemed important for a fuller understanding of NordNav Technologies and similar companies from a theoretical perspective. Mainly literature on small and medium sized businesses and barriers to growth was examined during this stage. The purpose was to find the single most important questions that NordNav needs answered. Other sources of literature are internal NordNav documents; such as business plans, product guides, presentations to venture capital firms, financial spreadsheets, etc. However, these are considered as part of the case study material and not integrated in the literature review. The reason for this is because of the great difference in scope and approach of academic literature and internal documents.

Phase 3: Action-based research The action-based research stage was the longest phase of the research endeavour and also the most complex and important to explain. During this phase theoretical literature was more thoroughly reviewed in conjunction with a continued meticulous investigation of NordNav Technologies. The literature was at this stage mainly centred on technology management and human resource management theories. Different models were appraised for a good fit for NordNav and similar companies in a similar context. Theories were in this way tested against “reality” and those that seemed to be applicable were integrated into the emerging framework.

Phase 4: Merging of theories The final stage includes integrating different theoretical standpoints and conclusions made during the third stage. Completion of the framework was the main priority, as was completion


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of the thesis. Conclusions and implications were then discussed with the company to get a better understanding of their view on the findings. The shape of the final thesis was ultimately decided at this stage of the study.

Parallel work: During the time that the research into factors affecting NordNav Technologies was done, operational work was also carried out in the company by the researchers themselves. An assortment of the activities carried out by the authors is listed bellow: o Business plans were developed for presentations with venture capitalists o Intellectual property rights concerning trademark strategies were examined o Market research was conducted for potential consulting projects o Feedback was given on polices and work orders decided on by the board of the company o Daily strategic discussions on NordNav Technologies o Administrative work, such as handling invoices, shipping goods, accounting etc. o Meetings with venture capitalists and potential business partners One expectation was that a widened knowledge would be acquired through the parallel work. The work would deepen the understanding of NordNav itself and the context of new high-technology firms in general. This would not only help the scientific part of the study, but would also ensure that the company get valid results.

4.5. Research critique and some notes on validity and reliability Finding cause and effect in a business setting is always difficult because of the dynamics of the market/research environment. For this reason it is especially important to discuss the validity and reliability of the conducted study in a wider perspective so that all perspectives of this will be highlighted. Dahlqvist, Davidsson, and Wiklund believe that the goal of science is “empirical generalisations or knowledge development” and that “systematically conducted replications with extensions facilitate this goal” (Dahlqvist et al., 2000). This particular thesis differs from this view in several ways so the following paragraphs will try to elaborate on generalisation and replicability. A common critique of action research is the lack of generalisability, or external validity (Dick, 2002). Generally this could be said about all case-based research. By looking at a specific company in a specific industry-market context any results or insights are bound to be restricted by these very facts that made the study so appealing in the first place. This is a trade-off between local and global relevance. By being sensitive to the local situation the global relevance is sometimes sacrificed. In this specific research situation local relevance has a clear priority. NordNav Technologies was the focus of the investigation and all conclusions should focus on their situation. Because of this focus and the dynamics of the ever changing marketplace assumptions are more difficult to make concerning broad implications for other firms. However, there should still be a high degree of prediction as the framework is based on existing and often verified research. For companies that are in the same general position as NordNav Technologies the findings of this thesis will still have a reasonable high validity. A second critique of action research and case study methodology is the lack of replicability. Replicability is the requirement to produces similar results in similar settings (Whitelaw, 2001). The kind of research that is conducted within NordNav Technologies or other new


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technology-based firms is very difficult to replicate. However, as the study focused on examining a particular situation in depth, replication was never a goal in this particular case. Another possible strong critique of the NordNav case study is that, by being so involved with the company under scrutiny, the objectiveness of the researchers could be questioned. However, as one of the main objectives of the study actually was to be as involved as possible in the operations of the company in order to discover the critical problem areas this was deemed a necessary trade-off. However, the nature of the study did not present any conflicts of interest between NordNav and the research approach. There were no opinions that NordNav should be “protected” or made to “look good” in any way in the development of the thesis. On the other hand, the subjectiveness of the researchers has surely affected the outcome of the study at some level. The best protection against this matter affecting the study negatively is consciousness of the problem. To aid in the evaluation of conducted academic studies Uma Sekaran has developed the Eight Hallmarks of good scientific research (Whitelaw, 2001) [Table 4-1]. Table 4-1: The Eight Hallmarks of good scientific research (Whitelaw, 2001)

There are several valid points of critique concerning the way this study was carried out. The choice of research methods certainly gives various opportunities for attack. Another critique could be that the close involvement in the company has influenced NordNav’s way of working but also the researchers’ objective of how NordNav are working. A final point of critique is the overall choice of approach. What can be learned from a study such as this when the New Technology-Based Firms are so dependant on the market/industry dynamics. This study actively tried to ignore many of the expressive management articles that were produced during the “golden age” of business growth of the 90’s. Is there a possibility that the environment will change in such a way that this thesis will meet the same fate? Only through an understanding the context can this be avoided.

The Eight Hallmarks Explanation of terms The NordNav Case Study 1 Purposiveness The research serves a

meaningful purposeThe study attempts to answer critical questions for the company

2 Rigour The research must be rigorousand thorough

The study has great depth and width

3 Testability The research must be about measuring some form ofperformance

The study takes off from growth and the barriers to growth

4 Replicability The research must be able to show results that can bereproduced

The study is difficult to reproduce because of the research method and approach chosen

5 Precision and confidence The research must be close toreality and hold correct results

The thorough sampling and triangulation of data sources ensures that the results of this study are valid

6 Objectivity The research must not be biased towards particular answers

Even though there has been a deep involvement with the company the research approach taken ensures that there is no conflict of interests

7 Generalisability The research must be applicable in a wider setting

The results of the study will be of great interest to firms similar to NordNav (ie NTBF's)

8 Parsimony The research must be comprehensive while stillcovering all key the issues

The sheer number of critical factors are hopefully made manageable by the chosen framework


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5. Theoretical exposition Management of small companies in a high technological environment is often a very complex affair and the road to business growth is seldom straight. As stated in the previous chapters, this thesis will focus on the management of core resources within New Technology-Based Firms (NTBFs). In past studies of these firms the focus has been on management of just one category of resources or capabilities; for an example technical resources or human resources. However, to fully grasp the dynamics of the NTBFs, such as NordNav Technologies, many areas of academic theory must be reviewed. In the Chapter 3, the Problem Area, the two most critical resources for many newly founded small high-tech companies are identified using Hill’s (1995) concept of order-winning criteria; the specific innovative technology and the competence of the people engaged in the firm. This thesis contributes to the literature around small firm management, but instead of following just one paradigm a combined framework will be developed by also merging technology management and human resource management in the context of small firm management [Figure 5-1]. The thesis will use integration of the three perspectives, Strategic human resource management, Strategic human resource management and small firm management, in order to create a conceptual framework with focus on core firm resources.



Management


Conceptualframework



Management


Conceptualframework

Figure 5-1: Bridging the gap between strategic technology management, strategic human resource management and small firm management (Own).

The development of innovations was earlier described as the new ventures primary objective. Innovation was defined as the introduction to the market of a product or an offering – the innovation process, or business generation. This also implies that product development is the heart of the innovation process. The combined framework will have several implications for how the product development process is managed by the firm. This chapter will start of by describing Strategic Technology management (STM) and the strategic human resource management (SHRM) theories as applied to new technology-based firms. An idea how STM and SHRM could be merged into a so called Strategic Intellectual Resource Management (SIRM) (a new conceptual framework) is then presented, followed by more practical implications this view has on the product development. A model for the product development process is presented as the central motivation for developing resources in accordance to the SIRM framework. The reason for the conceptual framework is presented in the middle of the theoretical exposition, and not in a specific chapter, is because further theoretical ideas are expanded on that result from the framework. A natural flow of synthesis is achieved through the following subchapters.


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In general, technology management deals with both production processes as well as product technologies. However, as NordNav Technologies currently does not utilize any specific process or production technology this thesis will focus solely on product aspects, and the unique technology developed by the company regarding software GPS receivers. Another delimitation of this study is the focus in the procurement side of company resources and capabilities, and not so much on the deployment of these resources [Figure 5-2]. This perspective was chosen because the development of resources and capabilities are deemed to fit with the issues that NordNav Technologies were currently facing.

“Make/Buy” “Keep/Sell”Procurement of

technology and competenceDeployment oftechnology and competence

New Technology-Based Firm

Focus of thesis

“Make/Buy” “Keep/Sell”Procurement of

technology and competenceDeployment oftechnology and competence

New Technology-Based Firm

Focus of thesis

Figure 5-2: Focus of thesis in relation to procurement and deployment perspective (Own).

5.1. Strategic Technology Management

5.1.1. Background and history of STM …to him and to every other worker was assigned one work for which he was by nature fitted, and at that he was to continue working all his life long and at no other… then he would become a good workman.

–Plato on the division of labour, The Republic (360 BC). Through the ages we have witnessed magnificent achievements in engineering and momentous technological breakthroughs; the Pyramids of Egypt, the aqueducts and roads of the Roman Empire, the Great Wall of China. These triumphs would not have been possible without advanced technical know-how, careful planning, tight control, or skilled co-ordination, with all resources directed at an explicit goal. The management of these factors, as well as an expert understanding of the technology that made it all possible, must have been systematic and very sophisticated, even by today’s standards. In fact, Plato grasped the idea of the division of labour more than 2,000 years ago (Plato, 360 BC), a concept still central in organisational management today. However, it was not until the late 19th century that management and production processes were approached in a more formalised fashion. As a result a novel field of research labelled Technology Management was gradually evolved to address the issues of technology. Even though history shows us that basic principles and requirements that govern management decisions have not changed all too much over the millennia, one must also take into account the broader context in which firms operate. Since the 1950’s technology, related activities have witnessed significant changes. A small revolution has occurred regarding the management of technology resources, especially in the area of research and development (R&D). According to Trott (1998) there are three mayor factors that have driven this change: • The technology explosion. The rate of innovation is continuously escalating.

Approximately 90% of our present technical knowledge has been generated since 1940’s.


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• The shortening of the product life cycle. Demand for differentiated and innovative products together with increased technical capabilities force companies to develop new products faster than ever before.

• The globalisation of technology. The rate of technological diffusion has increased tremendously in recent years, which have allowed companies and countries outside the traditional western world to acquire the technology know-how and produce new products. Production units can easily be relocated to countries offering a better economic environment.

There are many ways to approach this “brave new world”, as the popular press are fond of calling it. Anders Drejer (1996) presents four different schools of technology management that have gradually developed since the 1950’s; R&D management, innovation management, technology planning and strategic technology management [Figure 5-3].

1950 1970 19801960 1990

R&D Management

Technology Planning

Strategic Technology Management

Innovation Management

ContributionExpansion of scope to cope with more issues

Refinement of methods and models for risk and uncertainty

The first methods to cope with the entire innovation processPlanning methods to manage R&D activities

School of though

TechnologyManagement

1950 1970 19801960 1990

R&D Management

Technology Planning




Refinement of methods and models for risk and uncertainty


School of though


Figure 5-3: The stages of development of in technology management (Adapted from Drejer, 1996).

These schools are distinguished by their assumptions regarding the content and process of technology management [Table 5-1] and each of these schools deals with different scope, issues, and elements. Table 5-1: Four different schools of technology management (Drejer, 1996)

R&D Innovation Technology StrategicManagement Management Planning TM

Percieved bus. environment

Stable, simple and expanding

Changing, but predictable Changing, and discontinuous

Changing, discontinuous, unpredictable

Scope Manage R&D resources Manage innovation in the entire company

Manage technology across the company

Manage and intergrate technology with other aspects

Issues People, ideas, fund and culture

Conception, invention and exploitation of technology

Analyze and plan the complex process of technological development

Deal with all the dimensions of technological evolution

Elements Technology forecasting, budgeting

Technology forecasting, process management

Scenario forecasting, technology analysis and planning

Strategic MOT, organisation-technology approach, integrated MOT

As new technologies emerge, fragment and divide a greater number of diverse products appear in the market (Scott, 2001). This development has forced companies to adapt a new look on technology and how technology resources and activities should be managed effectively. From a technology firm’s perspective this rapidly advancing technology tends to increase the complexity of the company (Scott, 2001). The greater complexity requires that the company make more choices such as deciding which technologies should be pursued,


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which markets should be entered and which products should be developed. For the successful management of technology, Pavitt has identified three necessary ingredients (Trott, 1998). • The capacity to orchestrate and integrate functional and specialist groups for the

implementation of innovation • Continuous questioning of the appropriateness of existing divisional markets, missions

and skills for the exploitation of technology opportunities • A willingness to take a long-term view of technological accumulation within the firm Cooper (2000) noted that the majority of the businesses studied in his research were missing a new product and technology strategy for their business. Considering that this was a general study it can be assumed that the situation is even worse for New Technology-Based Firms, as they are often lacking in formal strategy conception (Klofsten & Lindholm Dahlstrand, 2000). This is unfortunate since NTBFs are even more dependent on technology then any other type of organisations. Since this thesis focuses on small firms, the further theory around technology management will be focused on STM in small firms.

5.1.2. STM and the small firm Strategic Technology Management has many different functions in different settings. STM is often associated with big firms and TM research almost solely focused on these large organisations. A possible explanation for this is that larger organisations often have functional areas that specialise in R&D and these make it easier to conduct quantitative investigations. In small firms there are, in contrary, seldom a special R&D department; it is often the same persons that conduct the research who are engaged in product development. Empirical research has shown that the relationship concerning returns on R&D and size is proportional. According to Bouwer and Nieuwenhuijsen (2002) this fact is based on the ability to spread costs, where larger firms have an obvious advantage. However, they also point out that large and small firms are more effective innovators at different stages in the life cycle of a technology or a product, but small firms are found to have a harder time commercialising R&D efforts if R&D is not conducted on a regular basis (Love & Roper, 1999). Rothwell, however, believes that small firms have an innovative advantage since they are potentially more responsive to changes in the marketplace, thanks to flexible managerial structures (Jones & Smith, 1997). The prospect of enjoying an innovative advantage over large firms show that managing the technology strategically is essential for small high-tech firms and there is a clear link between technology planning and business success (Cooper 2002). Even though it is a fact that there is a clear link between technology planning and business success, much of the literature indicates the difficulties of implementing strategic work in small companies. Many mangers are generally to busy in running the every day business so they don’t engage themselves in doing a strategy formulation (Jones & Smith, 1997).

5.1.3. Creating a STM strategy for a small firm Scott (2001) found that even though a company has long-term strategic plans concerning technology management, they are often partially discarded in favour of short-term product opportunities. This is unfortunate, as ‘best practice’ of technology management stipulates that companies should continue to follow laid out long-term strategies instead of changing them


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all too often. Newly founded and small firms are especially vulnerable to short-term technology goals taking precedence over long-term goals as small companies do not have the ability to budget for long-term activities because of limited resources. They are also more susceptible to changing conditions in the environment as they often maintain only one or a few long-term projects at any time. When reflecting on a technology strategy, it is important to remember that it is valueless in isolation. Instead, it makes sense only as an element of a larger business strategy that can determine how technology will be used to renew and expand the business. In order to make sure that long-term technology strategies are implemented throughout the organisation and at all levels it could be useful to consider the “Strategic Decision Hierarchy” by Matheson and Matheson (1998) [Figure 5-4]. By starting with selecting an appropriate and long-term “R&D Technology Strategy”, it should be relatively easy to work downwards and ultimately implement an “R&D Portfolio Strategy” and an “R&D Project Strategy”. This model works just as well in a small firm setting, even though small firms often lack the clear hierarchical levels depicted. Some might say that this in fact makes it easier for small firms to implement a consistent technology strategy throughout the organisation. Communicating ideals and strategies are easier as people work more closely together over functional areas in small firms (Jones & Smith, 1997).

Project Strategy

Organisational Identity

Corporate Strategy

Business Strategy

Portfolio Strategy

(Other functional decisionareas)R&D Project Strategy

R&D Portfolio Strategy

R&D Technology

Strategy

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy

(Other functional decisionareas)R&D Project Strategy

R&D Portfolio Strategy

R&D Technology

Strategy

Figure 5-4: R&D and the Strategic Decision Hierarchy (Matheson & Matheson, 1998)

It is important to remember that the technology is a critical resource that will give the firm a competitive advantage. Therefore technologies that are developed must contribute to the firm’s generic strategy (Porter, 1985). In many firms R&D programmes are driven more by pure scientific interest than business needs. Again, this is a luxury that a small business does not have. While larger firms may have room for “skunk works” (i.e. independent projects outside direct control of the company and top management) (Trott, 1998), small firms simply do not have the resources to spare on highly speculative research. From a technology management perspective new technology based firms face two major challenges according to Jones and Smith (1997); The link between technology planning and business planning must be developed, and a long term perspective must used when evaluating potential technologies. To this end Coombs and Richards (in Jones & Smith, 1997) have identified four critical decisions associated with STM that can be related to Figure 5-4: 1. Setting the R & D budget - Part of the R&D Technology Strategy. 2. The internal allocation of the budget between the longer term and the shorter term – Part

of Business Strategy and Portfolio Strategy issues.


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3. The allocation between business-related areas of R&D (divisions) – Part of Portfolio Strategy activities.

4. The allocation of specific performance-improvement goals to individual technologies or products – Part of Project Strategy activities.

However, before any of these questions can be answered there are several factors that influence STM that should be properly addressed. Jones and Smith (1997) presents five major factors, Accumulated technological competence, external orientation, organisational specialization, internal strategic cohesion and management skills, uncovered in a longitude study that influence technology strategy in SME’s [Table 5-2]. Table 5-2: Five factors that influence technology strategy in SME’s (Jones & Smith, 1997).

Accumulated technological competences:

Firms that have a wide-ranging R&D expertise will be better equipped to deal with a changing technological environment.

External orientation: SME’s should increase their “external orientation” by examining technology in a wider context, preferably together with external organisation such as universities or government agencies etc.

Organisational specialism: New technology-based firms often have an advantage because of their organic structure. Communication is simplified and an open climate supports innovation.

Internal strategic cohesion: The smallness of the firm cause other key areas such as finance, investment and marketing to have a more direct influence on the technology strategies.

Management skills: Top management must be directly involved in technological assessments and integrating technology strategy with corporate decision making if strategic technology management is to succeed.

After an overall technology strategy has been decided on, there is a need to look at the different parts that make up the technology strategy in more detail; i.e. research and development.

5.1.4. A closer look at research and development The approach of the firm on how to acquire/develop new technology can be divided into broader categories. According to Stankiewicz (in Saemundsson, 2003) there are two extremes of technology design, Discovery-driven technologies and Design-driven technologies [Table 5-3]. Table 5-3: Two extremes of technology design (Saemundsson, 2003).

Discovery-driven technologies Design-driven technologiesCharacterized by poorly articulated and weakly structured design spaces.

Characterized by structured and well-articulated design spaces with known boundaries.

Solutions to problems have to be discovered rather than designed, and innovation is driven by opportunity rather than demand.

Search processes are sequential and iterative rather than parallel, and innovation is demand-driven.

Technologies near the scientific frontier are an example of discovery-driven technologies.

Technologies that are based on scientific knowledge, but are far away from the scientific frontier, are largely design-driven.

Technical development processes are characterized by long duration, high costs and high uncertainty.

Technical development cycles are relatively short and costs and uncertainty are relatively low.

Fragmented and unpredictable. Incremental and related to the existing design space.


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This discrimination of separating the concept of technology is very extreme, but there are some obvious rewards in the way of separating them this way. For an example, projects that are poorly managed have a tendency to get more of the characteristics of the discovery-driven projects. A small company with few persons involved in the development of technology often has the same persons involved in every project conducted in the company. For the company it is essential to have a strategy and plan the management of their projects so that the researchers do not have to shift style in between every project. Universities tend to have more of discovery-driven projects compared to companies that pursue a design-driven approach. For spin-of companies this may be a potential problem because it implies that researchers have to change their way of working, something which is not straightforwardly done. Another way of separating/operationalizing the concept of technology is to regard the inherent difference between research on one side and development on the other (Zedtwitz & Gassmann, 2002). The contracted term R&D misleads us into viewing this as a single task. However, the necessities of science and the needs of engineering and development require different management approaches. Research is discovery-oriented while development is innovation-oriented (or as Saemundsson, 2003, puts it; Design-driven). Since R&D are both discovery and design-driven, is R&D torn between demands for both scientific and commercial results. Sometimes the terminology R&D is regarded as pure research while the term product development is regarded as a separate function. Because of the differences in orientation Zedtwitz and Gassmann (2002) believe that a physical, mental and/or organisational separation between research and development has several advantages. The R&D and the Strategic Decision Hierarchy model by Mathesson and Mathesson (1998) can easily be adopted to fit this new viewpoint by separating research and development at the top level [Table 5-3].

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy

(Other functional decisionareas)

Research Portfolio Strategy

Research Project Strategy

Development Project Strategy

DevelopmentPortfolio Strategy

Research

TechnologyStrategy

Development

Figure 5-5: R&D divided into two parallel strategy activities; research one side, and development on the other (Adapted from Matheson & Matheson, 1998).

For small high-tech companies, it is more difficult to separate research and development as the same people are involved in both research and development activities. Nonetheless, by being aware of the different preconditions of the two approaches the small firm has a lot to gain. The firm can then focus on identifying technology shortcomings and technology needs of the organisation. Technology management is essential to every high-tech firm, but what technology/products are needed?


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5.1.5. How to close the technology gap? To ensure business success companies must address some kind of market demand with appropriate services or product. Figure 5-6 puts the focus on a possible technology gap that arises out of a market demand for a particular product or technology. It is critical for a new technology-based firm to constantly assess this gap and meet the technological demands of the market.

TechnologyProduct/processMarket

Technology Strategy

Technology Gap

Demand Demand

SupplySupply

Figure 5-6: Technology gap as a result of technology demand and technology supply in the Market-Product/process-Technology chain (Own).

The Market-Product/process-Technology chain model explains how the market supply and demand influence the company’s technology demand and supply (a relationship which will be further developed in Chapter 5.5). The goal of Strategic Technology Management is to match supply with demand through technology gap alignment. If there is a technology gap, there is also the need to either develop or acquire that technology so that the supply matches the demand. All businesses can procure their technological resources in two ways; either by working internally (developing existing resources) or by engaging external backing (acquiring new resources). Internal development of new technologies requires that a firm have in-house research or development capabilities. The firm must also be able to generate ideas for new technologies as well as analysing their impact on business strategy (Snyder & Festervand, 1985). The resources needed for technology research and development are often beyond the means of newly established technology-based firms and therefore the need for external affiliation is crucially important for these companies. In chapter 5.7 and 5.8 further theories for acquisition and development will be presented.


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5.2. Strategic Human Resource Management

5.2.1. Background and history of SHRM

To keep his servant honest the prince ought to study him, honouring him, enriching him, doing him kindnesses, sharing with him the honours and cares… When princes towards servants are thus disposed they can trust each other, but when it is otherwise the end will always be disastrous for either one or the other.

-Employee relations as described by Machiavelli, in The Prince (1532) With World War II was raging across Europe and North Africa, through Asia and the Pacific the German military was secretly working on a new horrifying weapon of war –the atomic bomb. When learning of this development the American administration immediately realised that they would have to outdo the Germans and finish the bomb before they did. To complete this task, the United States initiated the Manhattan Project to organise the scientific minds and resources needed. Prominent researchers such as Albert Einstein, Robert Oppenheimer, Enrico Fermi, Niels Bohr, Richard Feyman, and Leo Szilard were all engaged, as well as more than 200 scientists living and working at Los Alomos. All the scientists had different backgrounds as well as different areas of expertise and with their knowledge it took the US less than tree years to create the first atomic bomb. While the German endeavour collapsed, the Manhattan Project eventually helped win the war for the Allies. The American choice of focusing on the key people and supplying them with all the necessary resources proved to be very successful. Human resource management has existed for as long as humans have worked together in groups. However, it is not until the 20th century that the subject has witnessed any real systematic development. The theoretical development started with human factors research; i.e. how employee performance could be enhanced given our physical and intellectual limitations. The emphasis has often been on efficiency, not leveraging people with the overall business capability (Walker, 2001). Therefore, isolating the impact of human capital on business results has been elusive. In fact, most work was, and is still, carried out with focus on blue-collar workers in a production setting (Heneman, 2000). Over the years there has been a gradual shift from staff management towards strategic human resource management (or SHRM). The shift towards regarding knowledge as a core organisational resource and the focus on the firm’s human capital has pushed management researchers to seek connections between HRM activities and business outcomes (Rogers, 2001) [Figure 5-7].

1950 1970 19801960 1990

Staff Management

Human Resource Development

Strategic HRM

Personnel Management

ContributionExpanding scope to include HRM in all strategic planning

Long-term activities aimed to acquire, retain and develop staffActivities that supports and motivates employeesAdministrative activities to support employees

School of though

1950 1970 19801960 1990

Staff Management


Strategic HRM



Long-term activities aimed to acquire, retain and develop staffActivities that supports and motivates employeesAdministrative activities to support employees

School of though

HumanResource

Management

Figure 5-7: The stages of development in human resource management (Guest, 1987, Roger, 2001, and inspired by Drejer, 1996).


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Strategic human resource management attempts to link human resources (people, structures and practices) to firm performance and because SHRM incorporates a total business view it has become a more dynamic concept. This change has come about partly as a result of changes in the workforce and the nature of work (Guest, 1987; Rogers, 2001) and nowadays HRM activities are more often directly related to the abilities of the organisation to successfully achieve its goals. [Table 5-4] depicts the most basic differences between staff management and SHRM. Table 5-4: The basic differences between Staff Management and SHRM (Rogers, 2001).

5.2.2. SHRM in the small firm As stated earlier, more people today find themselves employed by smaller firms than it was the case for 15 years ago. However, relatively few studies exist which explore the experience of employing and being employed in the small-firm sector (O’Gorman, 2000; Rauch & Frese, 2000). Small business research often focuses on the entrepreneur, not the organisation itself; therefore the human capital of employees of small enterprise has been a long neglected topic. One reason for the lack of empirical research on human resource management in small companies could be the fact that there is nothing to study. If human resource management plays a peripheral role in large corporations, this is even more the case in small firms. Therefore there are no metrics on which to base data collection. More often, medium and large businesses report having formal HR strategy statements than small firms (Koys, 2000). Khan and Cooper (2001) present two generic reasons why small companies do not provide as much competence development compared to larger firms;

The ignorance explanation – meaning that owners and managers are not fully aware of the benefits of competence development.

The market-forces explanation – concerning the fact, that the smallness itself is a barrier to effectively developing human resources. One aspect of the low level of competence development in small firms is economies of scale, that permit larger firms to employ specialists to address HRM activities, which is not possible for many smaller companies due to cost issues (Klaas, 2000). Another example of the market-forces explanation is the focus on short-term goals over long-term goals, the fear of loosing experts to other companies, and the absence of an internal labour market (Khan and Cooper, 2001). The two explanations above are closely connected with each other. As a result of cost issues, the general managers will often have to deal with human resources, which is problematic because of the complexity of HRM. Managerial time and resources will be drained while the quality of decisions may be affected by the fact that general managers often lack the expertise needed to conduct successful HRM (Klaas, 2000). Small firm are often at a disadvantage compared to larger organisations. Critical resources are harder to come by for a small or newly started firm. However, one of few areas where small firms can successfully compete is through knowledge and human resources. It is therefore unfortunate that human resource management is ignored in the small business context as

Staff Management Strategic HRMShort-term Long-termReactive Proactive

External control Self control


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employee effectiveness is potentially more important in small firms than in bigger firms (Rauch & Frese, 2000). The effective use of information and the acquisition and allocation of resources to build and apply firm competence can balance the scale between the large corporation and the young entrepreneurial firm (Neck et al. 2000). This would also pave the way for long-term growth and survival. Because of the importance of human capital, knowledge and competence high-tech firms should focus on building a large human capital base. According to Rogers (2001), firms that are built on human capital will be more successful than firms that build other types of asset bases. Another motive for new firms to invest in knowledge resources and creating knowledge strategies, except leading to firm growth, is signalling long-term strategic readiness for growth and thereby establishing vital external legitimacy (Neck et al. 2000; Rogers, 2001). Neck et al. (2000) has showed that firms implementing knowledge-based strategies are valued higher by the investment community at their IPO (initial public offering when entering the stock market). However, the same researchers have also found that there are no strong correlations between these strategies and growth in sales. This implies that knowledge investments may be inefficient in the long run if not put to proper commercial use (Neck et al. 2000). Baron and Hannan (2002) shows that companies working on HRM activities right from the founding of the company are more successful then companies neglecting it. Rogers (2001) also proposes that by emphasising the development of human assets early in the formation of the firm the firm will be more successful than firms that develop this asset base later in their development. The key to produce economic gain from knowledge investments (knowledge, human capital, competence) this knowledge must be transformed into knowledge-laden products that are of value in the marketplace (Rogers, 2001). In order to do this an organisation needs to create an effective human resource strategy.

5.2.3. Creating a HRM strategy for the small firm Most human resource management research is carried out on a top-down approach –linking HRM with specific small firm variables. Very few have tried to develop a framework for the actual HRM activities. As stated in the previous chapters strategy formulation focused on human resources will make the company more successful. A first step towards better business coordination is the development of a formal human resource strategy statement (Koys, 2000). A planned strategy provides the starting point for HRM activities in the firm. Where strategy is more emergent, and not formally stated, it will be more difficult to provide direction (Brown, 2003). Of course, clear and relevant vision, mission and objectives are fundamental and have to be articulated at all levels to “foster commitment, ownership and involvement” according to Briggs and Keogh (Briggs & Keogh, 1999) [Figure 5-8: Alignment model -HR strategy and strategic planning (adapted from Briggs & Keogh, 1999)].

HR St

rateg

y & P

lannin

g

HORIZONTAL & VERTICAL TEAMS

Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION

HR Strategy & PlanningO

rgan

isatio

nal a

spira

tion

HR St

rateg

y & P

lannin

g


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION


rgan

isatio

nal a

spira

tion

Figure 5-8: Alignment model -HR strategy and strategic planning (adapted from Briggs & Keogh, 1999)


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One important component of HRM strategy is to select the right organisational culture/structure right from the foundation of the company. In a study of 200 technology start-ups from Silicon Valley, Baron and Hannan (2002) found that companies that keep their organisational model intact grew, over a three years period, nearly triple the rate of firms that had altered their organisational model during that time. Companies that were initially product driven (first milestone is product sales) were the most likely to change their organisational model. In contrast companies that focused early on organisational building were more likely to retain their initial employment model. Baron and Hannan (2002) provides five distinct organisational models or “blueprints” for companies [Table 5-5]. An organisational blueprint is a way to work, think and structure a business, and it will influence the whole company; like handling of different situations and market performance. The five blueprint types are; star, engineering, commitment, bureaucracy, and autocracy. In addition to the five distinct blueprints there are also combinations of different kind which they call “Non-Type”. The blueprint is often established from the founding of the company and with the first competence acquisitions the blueprint will be even further settled. Most new high-technology based firms will by default have an engineering blueprint. The employees are a strong “peer-group”, the attachment to the company is work related and they love the technology they work with. It is most likely very challenging work tasks and also very committed work force. Table 5-5: Blueprint for success; mode of attachment and characteristics (Baron and Hannan, 2002).

Attachment

Star Work

Engineering Work

Commitment Love

Bureaucracy Work

Autocracy or Direct Control Money

Employment Blueprint

Characteristics

The individual is very important; Hiring the best of the best

Very committed work force; strong peer groups; challenging work tasks

The group is very important; strong culture; hiring the person that fit best; “stay until you retire”

Management by Rules and Procedures; administrative organisation

The top manager decides everything; “you work, you get paid”

Baron and Hannan (2002) also measured the impact on company performance and growth by the different organisational blueprints [Figure 5-9]. They found that the commitment model had the least likelihood of failure while autocracy blueprints had the most likelihood of failure. Autocratic organisations also had the lowest annual growth figures while the star model showed the highest growth.


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-100% -50% 0% 50% 100% 150%

Percentagedifferences inlikelihood offailure

Percentagedifferences inannual growth inMarketCapitalization

Star

Comittment

Engineering

Bureacratic

Non-Type

Autocratic

Figure 5-9: Different organisational blueprints impact on a companies performance according to Baron and Hannan (2002). Engineering blueprint set to 0 as a reference point.

Companies that have to change their organisational blueprint at a later stage will suffer from that by having larger employee turnover, much more likely to fail and less market shares. (Baron and Hannan, 2002). If changes in the underlying HR model are necessary the study also shows that it is best to do these at the same time as there is a change of the CEO. So when launching a new enterprise the planning should include a roadmap for evolving the organisational structure, HR system, which parallels other milestones; such as financial timeline, technological timeline and growth milestones. The cost and risk off chancing the model at a later stage might outweigh the apparent advantages. Therefore selecting an initial blueprint that adequately suits the present and anticipated future strategy and environment might be better then selecting one to ideally suites the present needs but mismatch with the future. There are many alternatives of choosing an organisational model and they have different impact on the performance. Even though the “Star” might look as one of the best, it has downsides as well as these firms are more prone to have high employee turnover (Baron and Hannan, 2002). To simplify the development of strategy statements a six-step model for aligning human capital to the business has been developed by Davison (Davison, 2002) as seen in Figure 5-10. If they are carried out systematically, these six basic steps can help aligning current and projected human capital to business strategy.


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Step 1. Establish business objectives and strategic goals

Step 6. Implement, Measure, Analyze, Link, Predict, Act

Step 5. Gap Analysis

Step 4. Assess Human Capital Readiness

Step 3. Align the organization structure to the new business objectives and goals

Step 2. Communicate the business objectives and goals

Because business is dynamic, aligning the employee's competencies and performance goals requires constant reassessment of strategy and direction.

Leaders need to communicate the message clearly and frequently. And they need to translate objectives into specific tasks that employees can understand and accept.

The organization's structure has to allow for goal achievement. This includes department staffing levels, number and types of staff, and competencies required.

Evaluate the employee's readiness to meet the competencies required. This includes skills, knowledge, ability, and behaviors.

What gaps must be addressed to assure successful alignment with the business. What additional skills, knowledge, ability, and behaviors are needed?

This last step is at the heart of any successful strategy execution and rightsizing effort. Plans need to be continually evaluated for applicability and effectiveness.













Because business is dynamic, aligning the employee's competencies and performance goals requires constant reassessment of strategy and direction.

Leaders need to communicate the message clearly and frequently. And they need to translate objectives into specific tasks that employees can understand and accept.

The organization's structure has to allow for goal achievement. This includes department staffing levels, number and types of staff, and competencies required.

Evaluate the employee's readiness to meet the competencies required. This includes skills, knowledge, ability, and behaviors.

What gaps must be addressed to assure successful alignment with the business. What additional skills, knowledge, ability, and behaviors are needed?

This last step is at the heart of any successful strategy execution and rightsizing effort. Plans need to be continually evaluated for applicability and effectiveness.

Figure 5-10: Aligning human capital to business (adapted from Davison, 2002).

Although the model presented by Davison seems simple and intuitive enough there are several inherent difficulties. What strategies should be chosen? How will these be communicated? What organisational structure should be chosen and how can it be aligned with the strategy? How can human capital and competence be assessed? Etc. If used, the model will help mangers in small companies to easily align the gap with the overall business objectives and strategic goals. Because of the generic nature of the model it works equally well on a corporate, functional, project, individual level and in all those cases it is important to conduct a competence gap analysis so that the best groups could be initiated.

5.2.4. Defining competence In previous chapters the terms competence, knowledge, human assets, human capital, and such have been used quite recklessly. It is time that the concept is more thoroughly defined. The definition is meant to give a broader idea of what is included in the notion of competence that is used in this thesis. The following ideas on competence are developed by Berglund and Blomquist (1999). • Competence in a firm can exist on both an individual and an organisational level and is

more than just the knowledge of the employees. At an individual level competence also includes attitudes, values, and skills. At an organisational or structural level, competence is defined as systems, routines, social patterns etc. Competence is often referred to as the collective memory of an organisation.

• Competence should be viewed as a dynamic resource, or a process that develops over time. For competence to be important to an organisation it must therefore be related to the goals and activities of that organisation. According to Berglund and Blomquist (1999) competence is “task and action oriented”.


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5.2.5. Closing the Competence Gap Assessing human capital readiness and conducting a gap analysis are important steps in the alignment model presented by Davison. Fortunately Ellström (1992) has developed the concept of an ‘internal labour market’ [Figure 5-11] that place focus on the competences demanded and supplied by the firm.

Competence

Gap

Market strategyMarket strategy

INTERNAL LABOUR MARKET

Competence demand

Competence supply

Technology strategy HRM Strategy

Market strategyProduct strategyEtc…

Competence

Gap



Competence demand

Competence supply



Figure 5-11: The determinants of the internal labour market (adopted from Ellström, 1992).

The internal labour market model explains how different strategic choices influence competence demand within the firm. To meet the demand on the internal labour market the competence strategy must match competence demand with a competence supply. The gap between demand and supply is the same gap that Davison addresses in Step 5 of the human capital alignment model in Chapter 5.2. The goal of human resource strategy is to match supply with demand through competence alignment. There are, according to Amit and Schoemaker (in Brown, 2003) and Ellström, (1992), two types of human advantages to be gained from competence alignment. Human capital advantage –recruiting, training and retaining outstanding people. Human process advantage –learning, co-operation and innovation, including organisational changes. Once the gap has been identified there are two generic ways in which to close it; make or buy. Ylinenpää (1997) presents a model that aids in this decision [Figure 5-12]. According to Ylinenpää there are actually two types of competence deficiencies; gaps and shortages. A company that has identified a competence gap should compensate for this gap by adding new competencies to the firm. The company that has identified a competence shortage should instead try to build on existing talent and complement existing competences.


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High-competence firmwith a narrow scopeof competencies

High-competence firmwith a broad scope of competencies

Low-competence firmwith a narrow scopeof competencies

Low-competence firmwith a broad scope of competencies

Range of in-house competenciesNarrow Broad

In-h

ouse

com

pete

nce

leve

l

Low

Hig

h






In-h

ouse

com

pete

nce

leve

l

Low

Hig

h

Compensate / Complement

Compensate / ComplementCompensate

Complement

Figure 5-12: Compensate/Complement strategies for different level and range of competences (from Ylinenpää, 1997).

The compensation strategy shown by Ylinenpää (1997) could be linked to an acquisition strategy as new competence is brought into the firm. In the same way, the complementing strategy could be linked to the competence development. It is very important to have a clear idea of how to act in the different situations, for an example when acquiring new position the company must know what kind of persons they are looking for. In chapter 5.7 and 5.8, theories for acquisition and development will be presented.


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5.3. Strategic Intellectual Resource Management framework

All our invention and progress seem to result in endowing material forces with intellectual life, and in stultifying human life into a material force

-Karl Marx, commenting on commodities and the human resources needed to produce them, speech, 1856 (Kurlansky, 2002).

The observations made by Marx at the beginnings of the industrial revolution still hold true; as products are becoming more and more knowledge-laden the resources needed for the production of these inventions have to be more tightly managed. These products of firm activities can be seen as intellectual property, which is often describes as “any product of the human intellect that is unique, novel, and unobvious” and which also has a value on a free market (COBAE, 2003). Intellectual property can be tangible or intangible and include discoveries, ideas, inventions, products, writings, names, methods, processes, formulas, programmes, presentations etc. However, as Marx points out, there has to be “material forces”, or resources, that are used as building-blocks to manufacture the intellectual properties of the firm. As shown in previous chapters, the most critical resources of new technology-based firms are the competence of the employees and the technology used. To make the connection between these assets and the intellectual properties, or end-products, it is more practical to label them as intellectual resources; a label that has evolved through the theoretical review. By grouping human resources and technology resources together as intellectual resources it is easier for small firms to see their proper value for the creation of business and revenues. Handling these resources demands a holistic framework centred on Strategic Intellectual Resource Management (SIRM). SIRM is not a new theoretical philosophy or development, but simply a novel approach to regarding strategic human resource management (SHRM) and strategic technology management (STM) as a wider whole, specially suited to the needs of small and newly founded high-tech companies. The theoretical ideals of technology management and human resource management have evolved to a point where they are ready to merge. The two different schools of thought, while striving towards a common more complete business view also come closer together. Figure 5-13 (next page) depicts the evolution of these two management concepts and how the notion of Strategic Intellectual Resource Management bridges the small gap between them. Chapters 5.1 and 5.2 described the difficulties that New Technology-based Firms face when trying to manage technology and competence, but also the necessity of these specific management considerations. By employing a Strategic Intellectual Resource Management approach these firms will ensure that they will cover the most critical management questions; how to handle their core resources. New technology-based firms should utilize the competitive advantages that smallness provide and develop a holistic approach to resource management and not let the management of one resource become more important than the other. Therefore it is important that both schools of thought are considered and balanced in all NTBF business strategy formulation. This framework will be used in the coming theory and analysis/conclusion chapters.


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1950 1970 19801960 1990

R&D Management

Technology Planning



Expansion of scope to cope with more issues

Refinement of methods and models for risk and uncertaintyThe first methods to cope with the entire innovation processPlanning methods to manage R&D activities

School of though Contribution

2003

Administrative activities to support employees

Activities that supports and motivates employeesLong-term activities aimed to acquire, retain and develop staffExpanding scope to include HRM in all strategic planning

Strategic HRM


Staff Management


Strategic Intellectual Resource Management Merging framework that focuses and balances firm strategies


HumanResource

Management

1950 1970 19801960 1990

Staff Management


Strategic HRM



Long-term activities aimed to acquire, retain and develop staff

Activities that supports and motivates employeesAdministrative activities to support employees

School of though

1950 1970 19801960 1990

Staff Management


Strategic HRM





School of though

1950 1970 19801960 1990

R&D Management

Technology Planning

Strategic MOT



Refinement of methods and models for risk and uncertaintly


School of though

1950 1970 19801960 1990

R&D Management

Technology Planning

Strategic MOT





School of though

1950 1970 19801960 1990

R&D Management

Technology Planning





School of though Contribution

2003



Strategic HRM


Staff Management




HumanResource

Management

1950 1970 19801960 1990

R&D Management

Technology Planning





School of thoughSchool of though Contribution

2003



Strategic HRM


Staff Management




HumanResource

Management

1950 1970 19801960 1990

Staff Management


Strategic HRM





School of though

1950 1970 19801960 1990

Staff Management


Strategic HRM





School of though

1950 1970 19801960 1990

R&D Management

Technology Planning

Strategic MOT





School of though

1950 1970 19801960 1990

R&D Management

Technology Planning

Strategic MOT





School of though

Figure 5-13: The merged SIR-Management framework in a wider context (Own).

As previously stated, empirical research states that either SHRM or STM are the most important building factors when developing a small company. This combined framework instead suggests that New Technology-Based Firms without a balanced focus on both those management theories will perform less well than companies that have this focus. Balancing the management of both technical and human resources is the most important task for managers in new technology-based firms. The uniqueness of Strategic Intellectual Resource Management is the fact that new technology-based firms now can use a combined framework. The activities in SIRM are the same used in STM and SHRM, but instead of using them separately the STM models should not be used without considering the implication of the SHRM models and vice versa. For a better overview of the SIRM-approach Figure 5-14 provides a strategic business hierarchy depicting different levels of analysis; business (the “know-why”); products and individuals (the “know-what”); technology and competence (the “know-how”) (There is also a subsequent level with the depiction “know-when” which will be explained in a moment). All levels have several unique focus and processes. This framework draws on work by Phaal, Farrukh and Probert (Phaal et al., 2001) that address the three ‘levels’ of technology planning.


39

BUSINESS LEVEL

TECHNOLOGY LEVEL

INDIVIDUAL LEVEL

COMPETENCE LEVEL

PRODUCT LEVEL

Focus: Organisation, networks and business portfolio, markets & finance, organisational blueprints

Process: Strategy development and implementation, R&D budgeting, Gap analysis

Focus: Product/Service portfolio, project budgeting and operations

Process: Innovation; new product development and introduction, Gap analysis

Focus: Technology-science-engineering base, performance goals

Process: Technology management to maintain technology base, Gap analysis

Focus: Employee portfolio, competence development and operations

Process: Hiring, training and retaining personnel, Gap analysis

”Know-why”

”Know-what”

”Know-how”

”Know-when”

Focus: Knowledge-competence base

Process: HR management to maintain knowledge base, Gap analysis

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy






Research

TechnologyStrategy

Development

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy






Research

TechnologyStrategy

Development

HR Stra

tegy &

Plan

ning


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION


rgan

isatio

nal a

spira

tion

HR Stra

tegy &

Plan

ning


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION


rgan

isatio

nal a

spira

tion

BUSINESS LEVEL

TECHNOLOGY LEVEL

INDIVIDUAL LEVEL

COMPETENCE LEVEL

PRODUCT LEVEL

Focus: Organisation, networks and business portfolio, markets & finance, organisational blueprints

Process: Strategy development and implementation, R&D budgeting, Gap analysis

Focus: Product/Service portfolio, project budgeting and operations

Process: Innovation; new product development and introduction, Gap analysis

Focus: Technology-science-engineering base, performance goals

Process: Technology management to maintain technology base, Gap analysis

Focus: Employee portfolio, competence development and operations

Process: Hiring, training and retaining personnel, Gap analysis

”Know-why”

”Know-what”

”Know-how”

”Know-when”


Process: HR management to maintain knowledge base, Gap analysis

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy






Research

TechnologyStrategy

Development

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy






Research

TechnologyStrategy

Development

HR Stra

tegy &

Plan

ning


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION


rgan

isatio

nal a

spira

tion

HR Stra

tegy &

Plan

ning


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION


rgan

isatio

nal a

spira

tion

Figure 5-14: SIRM-hierarchy; the merging strategic technology management and human resource management views (Further developed from Phaal et al., 2001)

One vital part of SIRM is to analyse the technology and competence gaps that the small firm deal with. Figure 5-15 depicts these through the eyes of the SIRM framework; using the term intellectual resource gap instead of discriminating between them.


Technology Strategy

Technology Gap

Demand Demand

SupplySupply

Intellectual resource gap

Competence

Gap



Competence demand

Competence supply



Competence

Gap



Competence demand

Competence supply



Figure 5-15: Intellectual resource gap within technology and human resources

The combined framework –Strategic Intellectual Resource Management –has little merit on it own; Intellectual resources must be developed and acquired for a purpose. The “know-when” serves as a reminder of this fact; that business is dynamic and always changing and that all decisions will lead to different outcomes for the firm. The primary objective of the new


40

ventures was in Chapter 3 described as development of innovations. Innovation was defined as the introduction to the market of a product or an offering, i.e. business generation– the core process of the firm.

Core resource

Core process

Core resource

BUSINESS GENERATION

Competence

Technology

Figure 5-16: Core resources and core process in New Technology-Based Firms (Own).

For New Technology-Based Firms like NordNav Technologies the heart of business generation would better be labelled as product generation, or product development process, with the intellectual resources as critical building blocks. To fully comprehend how the core resources are to be managed properly the product development process and factors affecting this process must also be understood.


41

5.4. The Product Development Process The development of new products is the critical process in the new technology-based firms. Fortunately, there has been a lot of research conducted in the field of product development that even a newly founded small technology-based firm can relate to. However, first it is important to note that the concept of product development not necessarily constitutes only physical products, but also other types of offers and services. The concept of products can be confusing for some, but as most much of previous theory talk of product development this term will be used. According to Pileman (2002) the goal of the product development process is successful business, which relies on the interaction between market, product and firm processes. Product development could be illustrated through many different phases. Pileman (2002) proposes a generic product development model as consisting of six phases; recognition of need, investigation of need, product principle, product design, production preparation, and execution [Figure 5-17]. A major difference between large and new technology-based firms is that the product life cycles are shorter in high technology firms, and for most of these firms a significant portion of their revenues are derived from new product introductions (Zirger & Maidique, 1990). This implies that the product development process must have a shorter time-span or the projects be better planned to fit market launch.

recognition of need

investigation of need

product principle

product design

production preparation

execution

Core resource

Core process

Core resource

BUSINESSGENERATION

Competence

TechnologyCore resource

Core process

Core resource

BUSINESSGENERATION

Competence

Technology

Figure 5-17: A generic development process as a core process (Pileman, 2002)(Own)

There are many obstacles to successful product development, and researchers cannot agree on which are the most critical. According to Pileman (2002) the most common obstacles are people-related; such as resources, communication and competency. Other problems are lack of systematic long-term planning, lack of market orientation, lack of formal communication and documentation, indistinct project ownership. A study, conducted by Scott (2001), showed that the most important area of management of high-tech product development and commercialisation was “strategic planning for technology products”. The often cited New Prod III study by Robert Cooper (1994) illustrates that it is during the first few stages of the project that success or failure is decided. Twice the success rate, double the market share and higher profitability are some of the rewards of preparation and pre-development activities. Cooper also found similar results were uncovered in a subsequent benchmarking study where the three most important cornerstones were found that depict successful product development; having a new product process that works; having the right resources devoted to product development; having a new product and technology strategy for the business (Cooper, 2000). Swink, on the other hand, quotes several case studies that suggest that top management commitment is a key determinant of new product development performance “in a variety of performance dimensions” (Swink, 2000, p2). Zirger and Maidique (1990) have found several of these key factors, and also some of their own; the quality of the R&D organization; the products’ value to customers; the synergy of new products with existing competence; management support during product development and innovation.


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5.5. Key determinants in the product development process As seen in Chapter 5.4, success in the product development process requires that several dynamics must be in place. Below is a model that depicts four major groups of determinants that have a critical affect on the development of products [Figure 5-18]. These are: Top management support: Top management must create strategies that put product development into context. They must also se to it that the resources necessary (financial, human, technological, production, etc) are obtainable (March-Chorda et al. 2002). Strategic alignment: A model for the product development process must be made. Project selection must be made to fit the overall strategy of the firm (Larsson, 2004; March-Chorda et al. 2002). Market alignment: The target market and its customers must be clearly identified. It is also a good idea to include the customers in the development process for consumer focus (March-Chorda et al. 2002). Intellectual Resource alignment: The intellectual resources, in terms of needed technology and competence, to complete the specific project must be identified and brought into the process. This is shown in chapter 5.3.

Product development

process

Clear strategic managementShared industrial vision

Top management support

Technology/HR gap analysisAcquisition/development

of resources

Intellectual Resource alignment

Detailed planStage – gate system

(project selection)

Strategic planning

Identification of target marketInclusion of potential user

Market alignment

Product development

process






of resources



(project selection)

Strategic planning


(project selection)

Strategic planning


Market alignment


Market alignment

Figure 5-18: Critical success factors affecting the product development process (inspired by March-Chorda et al. 2002).

The following subchapters will deal with the critical success factors, top management support, strategic planning, and market alignment. Intellectual resource alignment merits a chapter on its own; Chapter 5.6.

5.5.1. Top Management Support Improving the product development processes is one of the most important management challenges facing most new technology-based firms. Therefore improper leadership is a serious handicap in the product development process. According to King and Tucci (2000), several scholars states that managerial rigidities, rather than technological obsolescence, cause firms to fail during periods of technological change. At a firm level, there is a considerable body of research which suggests that short-term pressures are generated externally by


43

institutional shareholders who place objectionable pressures on management in order to gain short-term benefits at the expense of future gains (Demirag, 1996). This is a problem because employees will start to feel that management is working against them if they are not assigned the resources needed. Many mangers are also generally too busy running the every day business, so they don’t engage themselves in strategy formulation (Jones & Smith, 1997). Empirical studies have revealed that one of the most significant differences between high-growth firms and their low-growth counterparts was their tendency to have made changes that were designed to create more time for the leaders to manage the firm strategically (Smallbone & Wyer, 2000). Swink (2000) lists goal specificity, commitment, and resource management as important aspects of top management leadership in the product development process. By adopting technology and competence policies on a corporate level early on in the life of the firm it should be easier for management and development and marketing to work in unison on product issues. Those who sense a high level of management commitment are likely to; become more interested in the projects, take greater ownership, and be more willing to take risks (Swink, 2000). Visible support generates enthusiasm and committed managers are also more willing to provide the resources needed. Furthermore, a clear vision is helpful when resolving design conflicts and keeping projects on track (Swink, 2000). However, there are also some pitfalls of top management support. Some researchers have noted that what begins as support can quickly turn into interference, which is considered especially damaging in high technologically environments (Swink, 2000). One managerial mistake is rewarding and punishing failure to produce better project results. This may encourage projects to drag out indefinitely pending positive results, or in avoidance of failure (Matheson & Matheson, 1998). There is also the risk that management support develops into prestige, and projects are continued or discontinued because of these personal reasons. Top management is utterly responsible for overseeing and encouraging the cross-functional work within the company. Strategic planning must support with the market vision and the intellectual resources must fit the chosen product strategies.

5.5.2. Strategic Planning Berry (1998) has shown that strategic planning is important to long-term growth and performance of small firms. He holds it unlikely that a technology-driven start-up can evolve toward a market-led organisation without the development of a more sophisticated strategic planning system. One problem with no clear strategies in small firms is that short-term problems are given priority in over long-term planning (Pileman, 2002). However, during the early stages of firm development strategic planning does not have to be overly formalised; instead it should evolve and become more explicit as the firm grows. A strategic approach to project selection calls for firms to choose projects that build upon the firms’ existing technological, marketing and organizational competences. Strategically related products allow firms to use and further develop existing technological competences, and take advantage of communication sources and networks both internal and external to the firm according to Zirger and Maidique (1990). When deciding on which technology projects and which product development projects to undertake, firm should use Matheson and Matheson’s (1998) project portfolio matrix [Figure 5-19]. The model weighs technical feasibility against


44

commercial potential. There are four generic types of portfolio types in the project portfolio matrix; bread and butter, pearl, white elephant, and oyster [Table 5-6].

Bread and butter Pearl

White elphant Oyster

Maintaincomptetitiveness

Gain strategicadvantage

Commercialpotential

Low High

Low

Hig

h

Net present value given successTe

chni

calf

easi

bilit

y

Pro

babi

lity

of s

ucce

ss





Maintaincomptetitiveness

Gain strategicadvantage

Commercialpotential

Low HighLow High

Low

Hig

hLo

wH

igh

Net present value given successTe

chni

calf

easi

bilit

y

Pro

babi

lity

of s

ucce

ss

Figure 5-19: Project portfolio matrix (Matheson & Matheson, 1998).

Table 5-6: Description and characteristics of the project portfolio matrix (Matheson & Matheson, 1989).

Bread and butter These projects usually focus on evolutionary improvements to current products and processes in existing business areas. They are also characterised by modest extensions of existing technology or their applications. They fulfil the need to produce regular results for existing business units and to support shorter-term profit objectives. Upgraded software is an example of a bread-and-butter project.

Pearl Pearls address revolutionary commercial applications, and they deal with proven technical advances.

White elephant According to legend the king of Siam gave white elephants to his troublesome underlords. These sacred animals required lavish care and feeding and could not be required to work. Instead they consumed resources and reduced the underlords' ability to create mischief. These projects consume resources, displace more promising projects, and are unlikely to enjoy technical success or produce substantial commercial value. White elephants often start out as bread-and-butter or oyster projects, but become white elephants as commercial or technical defects emerge.

Oyster Represents early stage projects designed to produce new strategic advantage. They have blockbuster potential but breakthroughs are needed to unlock this potential. The majority of products in this quadrant fail, but those that succeed win big. Over time the uncertainties surrounding the commercial potential and the likelihood and technical success diminish. Technical barriers are overcome.

In the model presented by Matheson and Matheson (1998) above, white elephants are especially remarkable. These projects are continued because of several reasons; such as there being nothing else to work on, no-one is prepared to give up sunk costs, there are influential backers (often customers), management is unwilling to pay the costs of shutting down projects, and the market has changes without the people leading the project noticing. Once identified white elephants should be carefully examined to se what is potentially salvageable before they are redirected or abandoned. To ensure that oysters do not become white elephants people in the projects should be encouraged to determine early on which contain pearls and if any are potential elephants. An organisation should not focus on just bread-and-butter projects and incremental improvements in the long run as this will not sustain competitiveness according to studies made by Matheson and Matheson (1998). Instead, innovative projects containing oysters are needed to renew the business over time. Without occasional ventures in new directions, the firm will soon exhaust the technical potential of current product lines particularly in rapidly changing high technology markets (Zirger & Maidique, 1990).


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5.5.3. Market Alignment

In many areas it is not clear before the event who is in the innovation race, where the starting and finishing lines are, and what the race is all about. Even when all these things are clear, companies often start out wishing to be a leader and end up being a follower!

-Pavitt, (in Trott, 1998) It has been suggested that small firms competing in industries dominated by large firms (as is the case with many new technology-based firms) should find specialised niches within the market (Weber, 1994; Snyder & Festervand, 1985). A niche is defined as the social and economic conditions that can support one form of organization (Greve, 2000). Although niches can be developed geographically or in terms of customization, a more common strategy requires that small businesses develop new products to be sold to specialised markets (Snyder & Festervand, 1985). Often large firms are unwilling or unable to fill these specialised niches, and equally often buyers of such products are large firms. Thus, for many small high-technology businesses, survival and growth require the development of new products for several specialised markets. After the discovery of new niches, or market gaps, the new technology-based firm can start to plan their product development to fill these gaps. Figure 5-20 illustrates the market alignment activities in relation to the Market-Product/process-Technology chain.


Technology Strategy

Market Gap

Demand Demand

SupplySupply

Market alignment

Figure 5-20: Market alignment in the Market–Product/process–Technology chain (Own).

When a market niche appears the new technology-based firm often have the opportunity to decide whether it will be a leader (pioneer) or a follower on that market. There are advantages and drawbacks with both these approaches. Porter (1985) favours a technological leadership approach when the lead can be sustained; either because competitors cannot copy the technology, or the firm is able to keep up the pace of innovation so the competitors do not catch up. If the lead cannot be sustained this approach is only justified if there are first-mover advantages to be exploited; otherwise the technological leadership approach will be too costly (Porter, 1985). Being the first on the market only leads to opportunities for achieving positional advantages, market share dominance and large returns. If a the pioneering firm don’t have the expertise, resources and creativity needed to exploit these opportunities and meet the threat of later entrants, the first mover advantages will be wiped out (Kerin and Varadarajan, 1992). Companies with strong R&D capabilities have more advantages on the market if a leadership approach is adopted and companies with strong marketing skills have advantages with a follower approach (Kerin and Varadarajan, 1992). However, according to Trott (1998) is it


46

not useful for an organisation to determine before the development if a product should be leader or follower. The product will not be successful if it’s developed to fit into a technology matrix. Instead, the product development will only be successful if it is fully integrated into the company’s business. New technology-based firms often develop products in a close relationship with one or a few of their first and/or key customers. For a newly established firm this can be a good way to learn about the industry and develop relationships with important customers and partners. The drawbacks are that the venture can become so focused on pleasing a single customer that they ignore the rest of the market. Potentially these projects could become white elephants that consume critical resources. According to Magidson and Brandyberry (2001) firms typically engage customers in three ways; they design for users using in-house experts that decide what customers want; they design with users by getting input from customers and then doing the design based on this; they let users be part of the design process by giving them more to say, not only on product requirements but also on other product characteristics.


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5.6. Intellectual Resource Alignment Intellectual resources were earlier identified as building blocks for successful product development. Intellectual Resources are dynamic and while small companies grow they automatically add new Intellectual Resources to their portfolio. New technology-based firms active in emerging markets sometimes have to grow very fast. During such growth there may be some difficulties matching the available intellectual resources with the actual needs. This mismatch between the demand and the supply is referred to as the intellectual resource gap (Figure 5-21). Constantly monitoring and analysing the gap will help the management to align the needed resources.


Technology Strategy

Technology Gap

Demand Demand

SupplySupply

Intellectual resource gap

Competence

Gap



Competence demand

Competence supply



Competence

Gap



Competence demand

Competence supply



Figure 5-21: Intellectual resource gap within technology and human resources

To clarify, Strategic Intellectual Resource Management has strong influences from the Resource Based View of the firm (or RBV), which explains differential performance of firms in an industry by studying “heterogeneously distributed and imperfectly mobile” resources (Kelley & Rice, 2001, Boxall, 1999). The resource-based view is also known as the “capabilities view” (Klofsten, 1992; Mathew, 2002) which implies that managers have to select the most effective use of the firm’s resources and capabilities (Wiklund, 1998). The resource based view of the firm suggests that firms gradually accumulate the necessary capabilities to support and implement their chosen strategic direction; in turn, strategic choices are strongly influenced by the resource capabilities of the firm (Barney, 1991; Dierick & Cool, 1989). Such implementation characteristics are systematically and deliberately developed as a resource to provide a sustainable competitive advantage (Amit & Shoemaker, 1993; Hamel & Prahalad, 1993). One criticism of the RBV is that it remains anchored to a view that sees firms developing their resources internally, ignoring the wider aspects of resource exchange (Mathew, 2002). This view is especially risky when dealing with NTBFs, as resources of all kinds are commonly limited in the new firm. The earlier stages of firm growth are often characterized by high levels of financial uncertainty which could prevent these firms from acquire new resources and expanding their operations. (Klofsten, 1992; Klofsten & Lindholm Dahlstrand, 2000) Strategic Intellectual Resource Management is broader than resource base view since this framework does not only look at internal resources, resources could also be acquired externally, for an example through networks or consultants.


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The most important lesson we learn from the resource based view is that it is the actions that a firm takes with respect to its resources and not the actual resources themselves, which affect firm performance, technologies etc (Barth 2003). This view can be related to the previous discussion of procurement and deployment of resources in chapter 5. However, as the procurement aspects are the focus of this thesis these issues will not be discussed at greater depth. In chapter 3 Hill’s (1995) order-winning criteria was presented to determine two types of critical resources in technology-based firms; technology and competence. In order to achieve a better analyse of the critical resources, a wider and deeper perspective is specified by the VRIO framework (Barney, 1991, Kangas, 2000) [Table 5-7]. VRIO is an acronym for:- Valuable -the resources help the firm reduce costs or improve differentiation Rare -few, if any, firms posses this resource Inimitable -the resource cannot be copied easily Organised -the firm must be able to take full advantage of the resource. Table 5-7: The VRIO framework for evaluation the competitive implications of firm resources and capabilities (Kangas, 2000).

Valuable Rare Costly to imitate

Effeciently organised

Competitive implications

No No No No Competitieve disadvantageYes No No Yes / No Competitive parityYes Yes No Yes / No Temporary competitive advantageYes Yes Yes Yes Sustained competitive advantage

It is important to remember that no resources should be viewed in isolation, but as a part of a larger process or system. The resources have no value in themselves if they are not put to good use (Barney, 1991). Using the VRIO framework as an analytical tool a newly started firm can conclude which technological and competence resources are sustainable in the long run and which are more temporary in nature. This will aid the firm in deciding on which resources to develop. When an intellectual resource gap has been identified, the next step is to attract the needed resource. There are two broad means of gaining intellectual resources, either through acquisition or through development [Figure 5-22]. Basically acquisition focuses on external resources while development deals with resources as an internal matter.

Acquisition Development

Human

Resources

Technology

Resources

Figure 5-22: Acquisition or development; two ways of filling the technology and competence gap.


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5.6.1. Acquisition Acquisitions are used when small firms want to add resources to their portfolio instead of developing them on their own. Figure 5-23 display some typical acquisitions related to technology and competence.

Patents, licences,alliances, etc…

Hiring, partneringoutsourcing, etc…Acquisitions

Human

Resources

Technology

Resources

Patents, licences,alliances, etc…

Hiring, partneringoutsourcing, etc…Acquisitions

Human

Resources

Technology

Resources

Figure 5-23: Some typical acquisitions of technology and competence

The acquisition strategy approach itself is generic by nature and it is defined as all resources that come from the outside of the firm. Often the word acquire is related to the actual purchasing of something, but this is not necessarily the case, since it could also denote the attainment of knowledge through strategic partnerships, etc.

Technology acquisition Research and development does not necessarily have to be an internal affair, it could be outsourced in the same way as any other business function and performed by a third party. In fact, research has shown that small firms are more likely to engage external R&D than their larger counterparts (Love & Roper, 1999, Bouwer & Nieuwenhuijsen, 2002). This decision is based on the fact that smaller firms do not have any of the advantages connected with size. To achieve economics of scale in internal R&D the firms needs to be larger than medium sized and employ a large quantity of research staff. Another form externally acquired competencies is the use of external new product development. This involves contracting the services of private laboratories or firms which specialize in the development and testing of products for their clients. Because of the temporary, task-oriented nature of this relationship, the fixed costs and capital expenditures associated with external new product development is substantially lower than maintenance of in-house facilities and staff (Snyder & Festervand, 1985). In short, many small high-technology businesses would benefit from the external development of new products and processes in order to (1) conserve financial resources and (2) develop state-of-the-art new products which permit successful competition with larger firms (Snyder & Festervand, 1985) There are different ways of outsourcing R&D and it depends on the level of understanding of the acquired technology/knowledge from the perspective of both the acquiring firm and the external part (see Figure 5-24 for a model of this viewpoint). For an example; when the prior knowledge of the technology is high for both the partner and the acquiring company both companies would benefit from a possible R&D strategic alliances; but if the knowledge is high within the acquiring company and low outside, the R&D should be conducted completely in-house (Trott, 1998).


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Conduct internal R&D

Level of understanding of the

technology by external third parties

Level of understanding of the technology by the acquiring business

High

High

Low

Purchase know-how embodied within people and processes

Explore external R&D contract possibilities

Seek possible R&D strategic alliances

Purchase/license a patent

Purchase existing products or manufacturing process

Conduct internal R&D

Level of understanding of the

technology by external third parties

Level of understanding of the technology by the acquiring business

High

High

Low

Purchase know-how embodied within people and processes

Explore external R&D contract possibilities

Seek possible R&D strategic alliances

Purchase/license a patent

Purchase existing products or manufacturing process

Figure 5-24: Acquisition of external technology/knowledge matrix. The shaded area represents situations where those R&D is best kept within the firm (Trott, 1998)

When considering the figure above it is important to consider that there are other aspects that must be taken into account, such as the transaction costs associated with acquisitions and the need of control over the technology. The transaction costs are likely to be higher in smaller firms compared to larger and firms that to not perform research on a regular basis (Love & Roper, 1999). For a new technology-based firm the decision to acquire technology or to develop it in-house is more acute because of the dynamic nature of the market (Supported by Bouwer & Nieuwenhuijsen, 2002; Scott, 2001; Kelley & Rice, 2001; Autio, 2000; Jones & Smith, 1997; Trott, 1998). There is very little room for mistakes. Since there are so many ways of acquiring external knowledge/technology it is very important that a careful monitoring is performed to ensure that maximum competitive advantage can be assured. The need for a firm to retain control of the technology must also influence the choice of acquisition method. As an example a technology with many new product opportunities should be held in control within the company but a technical problem that are not in direct of the business scope could be suited to a research contract with an university or an external company. Another influence on the level of control is where the technology is in the life-cycle. A technology with near completion that shortly is about to be incorporated in new products should be held in more control then if it is more general research without a clear product application. There is a wide spectrum of possible technology acquisition strategies in a company. Figure 5-25 shows some different acquiring strategies and how they usually are integrated into the acquiring company’s organisation. For an example internal R&D needs to be very much integrated into the organisation but purchase of technology does not always have the same need of integration.


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Internal R&D within the organisation

Acqusition of firms with technology, including part ownershipand contactual obligations

Joint ventures, underpinned by formula contracts. This willinclude joint R&D projects

Technology cooperation, including those arrangements that donot necessarily involve a formal contract

Purchase of technology, including contract R&D, the purchaseof licenses and sponsored research at universities

Technology scanning, including formal and informal methods of acquring technological knowhow

Deg

ree

of o

rgan

isat

iona

lint

egra

tion

Maximum organisational integration

Minimum organisational integration Figure 5-25: Technology acquisition: How different acquiring strategies are associated to organisational integration (Source: Trott, 1998).

For new technology-based firms acquiring technology externally it is important that the acquisition is followed by the development of specific skills in the firm that are capable of fully exploit the acquired technology (Jones & Smith, 1997)

Competence Acquisition The best way to explain competence acquisition is when firms try to compensate for their lack of competence within the firm by acquiring this in from external actors. This can imply hiring people or getting access to expert knowledge through networks. There are several ways of acquiring competence to a company and it is as for technology acquisition, dependent on the competence level within the acquiring company and the competence level within the external partner. Some of the most commonly used acquisition methods are hiring new persons and using external consultants. Recruiting and retaining key staff is a major concern for all small firms. Skilled people are often seduced by the attractions of large companies or the professions, and if the appropriate people are recruited, the limited options can make suitable career paths difficult to find (Baron & Hannan, 2002; Klaas, 2000; Marlow, 2000). In small firms the wrong recruitment decision can be disastrous. For small firms it is especially important to recruit the right person. A challenge that faces small firms in particular is the attraction and retention of employees. Klaas (2000) found that small and medium sized firms were at a disadvantage due to their size. This was a consequence of small firms not being able to offer competitive benefit packages. Marlow (2000) has also analysed the problem of firm size and personnel recruitment. Because firms grow through different “thresholds” that will affect employment practices, each threshold require different responses from the labour market.

• Entry threshold – first employee • Delegation threshold – first manager • Formalisation threshold – formal recruitment • Function threshold – professional personnel employed


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Marlow (2000) found that firms with between 10 and 14 employees experienced problems with recruitment that lasted until the firm exceeded 50 employees. Before these employee numbers are reached firms often do not have a specific HRM function. Diseconomies of scale are often cited as the reason for this function not being implemented earlier (Marlow, 2000). There are also other explanations for the problems with recruitment that will become apparent later throughout this chapter. When selecting new employees for the firm it is important to remember the organisational blueprint discussed in chapter 5.2.3. The basis of selection must not only be to fill the competence gap but also fit the blueprint of the firm itself. Table 5-8 depicts the blueprints and the selection dimensions associated with each type (Baron and Hannan, 2002). When selecting employees there are three main criteria’s to consider; looking for persons with the highest potential, i.e. persons that will be the best within a specific timeframe; looking for person with the highest skills, i.e. persons that will contribute most to the company in the short run; or looking for persons that fit best in the organisation, i.e. persons that will fit best with the rest of the “family”. Table 5-8: Organisational blueprint for success, attachment and selection (Baron & Hannan, 2002).

Attachment Selection

Star Work Potential

Engineering Work Skills

Commitment Love Fit

Bureaucracy Work Skills

Autocracy or Direct Control Money Skills


Dimensions Characteristics

The individual is very important; Hiring the best of the best

Very committed work force; strong peer groups; challenging work tasks


Management by Rules and Procedures; administrative organisation


Choosing the right organisational culture/structure right from the start of the company is very essential for a company. Changing organisational blueprint or model gave 1/3 of growth, compared to companies that hadn’t changed their model since start-up, according to Baron and Hannan (2002). This means that it is more important to choose an organisational blueprint that will fit the anticipated future then choosing one that is the best for today. When entering the formalisation threshold described by Marlow (2000), both attachment and selection models should be decided upon. Knowing which organisational model the company exercise will help the management scout the persons that should be hired. For example; should an employee be hired because he/she is what we need now (skills), what we need tomorrow (potential), or have the best fit to the rest of the group (fit)?


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Another issue that complicates the acquiring process of new employees is that it is not easy for a firm to know what competence to look for, and how this competence can be used in the firm. Ylinenpää (1997) notes that a lack of in-house competence will also make it hard to identify the actual requirements of the firm or the competence gap. Less competent firms will therefore exhibit higher transaction costs for acquisitions. To counter this Ylinenpää suggests investing on in-house competence so that the firm can better define its’ own needs. One way of tackling this problem could be to follow Deakins & Bussouaras (2000) advice for small and growing firms and use external directors (or non-executive directors). These bring value-added benefits into the company and contribute with their knowledge and networks and can guide and advice the entrepreneurs on strategic decisions. This creates a snowball-effect as the external directors will make is easier for the firm to get into contact with other external resources; both technological and competence-related.

5.6.2. Why acquisition of competence and technology? The above described theory about acquiring resources clearly shows a consistency between company performance and the possibilities to acquire the right resources. For small high-tech companies it is also rather common that they join different networks and alliances to get a better chance on the market. Such an alliance could be with a competitor (horizontal alliance), or with a customer or supplier (vertical alliance) (Robertson & Gatignon, 1998). Why should companies join alliances? Robertson and Gatigon (1998) give three motivations were alliances were found to play a major role and that is in scenarios were there is a need of: (1) technology complementarily, (2) faster development of innovation, and (3) improved market access. Robertson and Gatignon (1998) further summarize the potential benefits of technology alliances as follows: (1) gain faster access to new technologies or markets; (2) gain advantages of scale in R&D; (3) access technological expertise located beyond the boundaries of the firm; (4) leverage the comparative advantage of each partner; (5) increase the firm’s openness to its environment and stimulate internal innovativeness; and (6) share the risks of R&D beyond the resources of any one firm. Unfortunately, these potential benefits are not always realized. Studies by McKinsey and Coopers & Lybrand suggest that seven out of 10 alliances fail to meet expectations and are dissolved (Robertson & Gatignon, 1998). In many cases it is internal management problems that will hinder the cooperation, strategic intellectual resource management could be used to avoid these problems. Those companies that create early alliances are more likely to overcome early difficulties of sustaining expansion than those that are isolated. One of the objectives with the partnership is to access complementary resources that align the intellectual resources with the demand of resources. Alliances also allow to access new markets through the partners and another important reason is that alliances with distributors and suppliers allow a company to extend its activities up or down the production chain more easily (Autio, 1997). Acquisition is not the only way of gain access to the needed resources. Another major way is to do development of both the technology and the competence within the organisation.


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5.6.3. Development Development is used when companies want to extend their Intellectual resources from their current resources. Figure 5-26 shows some typical development activities for human and technology resources.

Research Specialisation of products Incremental etc

Training Workshops Work rotationEducation Etc

Development

Human

Resources

Technology

Resources

Figure 5-26: Some typical technology and human resource development.

Development is sometimes limited in a definition of just developing technology resources. With the introduction of strategic intellectual resource management it is important to not limit the definition by only looking at technology resources. Developments of intellectual resources are a cornerstone in the strategic management of firm resources.

Technology Development A business can develop new products or technologies in two ways; either by working internally or by engaging external backing. Internal development of new products requires that firms have in-house research or development capabilities. The firm must also be able to generate ideas for new technologies and products as well In the high-tech industry R&D efforts and product development success is very closely related according to Snyder and Festervand (1985).When it comes to innovation, small firms enjoy a comparative advantage compared to larger firms (Baldwin, 2000). Audretsch (in Bommer & Jalajas, 2002) found that the innovation-per-employee ratio was in fact six times larger for small firms over their large counterparts and Cooper (1994) reports that large companies spend three to ten times as much to develop a particular product or technology. To counter this many large firms set up “skunk works” (i.e. independent projects outside direct control of the company and top management) to imitate SMEs (Bommer & Jalajas, 2002; Trott, 1998). Small firms innovate better thanks to their flexibility and their ability to provide responses to customer requirements (Baldwin, 2000) Nevertheless, to keep initiative and technological leadership small firms need to strengthen their in-house research according to Bougrain and Haudeville (2000). Cohen and Levinthal state (in Bougrain & Haudeville, 2000) that it is because the ability to exploit external knowledge, related to the level of internal research efforts, small firms innovate better. Initial investments on internal research and development allow firms to make better technological choices, but a firm that neglects this will be less aware of technological opportunities (Bougrain & Haudeville, 2000).


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Firms that practice a follow-the-leader strategy with regard to new products similar to their existing ones can probably better rely on internal resources than firms that seek to be first in the market with new products or to develop new products that are very different from their currents offerings (Snyder & Festervand, 1985). The latter strategy requires levels of creativity, innovativeness and expertise which many small firms could have an advantage in because of more flexible organisations and management as seen above, if this advantage could be reach should the development be kept internal. Internal development of technology resources also develops the firm’s learning or absorptive capacity (Bougrain & Haudeville, 2000). There are several other important reasons for firm to consider internal development of technological resources. For example, the more important a product or technology is the more likely it is that a firm will want total control of the technology (Robertson & Gatignon, 1998). The same basic motive could be said about firms in high growth markets. These firms perceive a higher potential return on investments from research and therefore follow an internal development model. If demand is uncertain for a technology or a product and the market is volatile the efficiency of alliances will decline. This is because unforeseen events drive up the costs of projects that will have to be subsequently modified (Robertson & Gatignon, 1998). Internal development will then become the more cost and resource-effective approach.

Competence Development In emerging companies Chandler (2000) has noted that human resource practices and strategic initiatives unroll simultaneously. So, when human resource activities such as training and compensation practices support strategic initiatives firms appear to perform better. This is the essence of strategic human resource management. Becker & Gerhart (in Chandler, 2000) claim that for human resources to be a source of sustainable competitive advantage their management must be embedded in deep within the organization. A problem in small firms concerning the development of competence is that with everybody involved in operational activities and with no function concerned with human resources management, certainly not at a strategic level, there is no time to consider the firms competence. In the cases that firms do invest in individual and firm competence, these activities are often ad-hoc and short-term in nature (Ylinenpää, 1997). To hinder competence “decay” in firms Kamoche (1999) suggests regularly reviewing competence alignment programmes to ensure that training is in line with the strategic objectives of developing firm expertise and closing the competency gaps. Before planning for competence development and organisational learning activities it is important to consider the different theoretical perspectives that exist in competence development and around organisational learning activities this field. Ellström has identified four basic perspectives that exist include Technical-rational, Humanistic, Conflict-control, and Institutional outlooks (Ellström, 1992) [Table 5-9].


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Table 5-9: Perspectives on competence development (adapted and translated from Ellström, 1997).

Technical-rational Humanistic Conflict-control Institutional

The technical-rationalistic perspective is grounded on an instrumental notion of organsisational activities as tools for realising the principal interests and goals of owners.

Based on a psychological, development-focused humanism that regards competence development as an investment, not a cost

Based on the idea that disagreement and conflict is the foundation for the organization; Political processes characterized by negotiations and compromises.

Regards the organisation as an institution in itself, set apart from the goals and interests that originally motivated the foundation of the firm

Hierarchical decision structure; top-down approach with roots in Scientific Management

Mutual adjustment between the organization and the individuals; puts focus on culture and informal systems and on creating ‘organisational learning’

The path and structure of the business is a result of internal power struggles and not objective decision processes

The firm is organic and adjust itself to the environment through undramatic bottom-up processes

Learning based on human capital theory; specific and task-oriented; planned through systematic requirement analysis

Learning achieved through spontaneous adjustment to changes in the environment.

Training and organisational learning as a management control tool

Develops symbolic functions that signal legitimacy and status; Qualifications are social constructs and do not reflect the objective needs of the organization.

Learning is viewed as a passive process where the employees learn to solve given problems;

Focus on communication, consensus concerning goals, and flexibility amongst employees.

Employees however regard organisational learning primarily as an individual goal

Ad-hoc and short-term competence development activities.

Perspectives

Perspectives on competence can also be used when looking at the blueprints for success. Earlier the authors have showed the blueprint of success when it comes to Attachment and Selection. The third dimension in the model is Coordination and control [Table 5-10]. In the blueprint model presented by Baron and Hannan (2002) there are four different ways of coordination and control. First professionals where the employed are supposed to be professional and committed to excellence and the control emesis on autonomy and independence, secondly peer/culture which is informal control through peers or organisational culture, third one - Formal procedures and systems and last, direct control from the boss on the employee. The complete model is further described in chapter 5.2.


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Table 5-10: Employments blueprints including coordination and control (Baron and Hannan, 2002)

Characteristics Attachment Selection Coordination/

Control

Star Work Potential ProfessionalsThe individual is very important; Hiring the best of the best

Engineering Work Skills Peer/CulturalVery committed work force; strong peer groups; challenging work tasks

Commitment Love Fit Peer/Cultural


Bureaucracy Work Skills FormalManagement by Rules and Procedures; administrative organisation

Autocracy or Direct Control Money Skills Direct



Dimensions

As discussed in Chapters 5.2 it is very important to choose a method of control that will suit the organisation in the near future. Another issue within development of the human resources are the learning process in the organization, individual, collective, organizational perspective. Human resource development includes educations as well, but it is important to remember that education of personnel is also beneficial for the whole organisation. Figure 5-27 depicts the spread of results of individual learning within an organisation. For training to be successful the employees must have opportunity to engage in learning and the possibilities to practice new skills. According to Berglund and Blomquist (1999) there must also be appropriate organisational structures, routines and norms in place to care of the new skills, and effectively put them in use in the organization.

LearningThe individual learnssomething

CompetenceThe individual doessomething

ChangeIn some aspect

Changedthinking

Changedbehaviour

Changedreality

Changedvalues

Changedroutines and

systems

Changedoutput

Expressed as…

Expressed as… Expressed as…Expressed as…

Expressed as…Expressed as…

Results in

Results in Results in

Results inResults in

Results in

Individual learning Collective learning Organisational learning




Changedthinking

Changedbehaviour

Changedreality

Changedvalues

Changedroutines and

systems

Changedoutput

Expressed as…



Results in



Results in


Figure 5-27: The organisational learning process (Adapted and translated from Berglund & Blomquist, 1999).


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High-performing firms have utilised work-related methods oriented towards continuous learning to a significantly higher degree. For an example are regular meetings with employees including elements of education, project work is seen in order to develop competence and the there are continually personal development meetings and career planning (Ylinenpää, 1997) It is critical that companies consider both technical (hard skills) and soft skills when training employees. Management often do not see the value of training in non-technical areas. Soft-skills training such as listening, leadership and teamwork can provide companies with “world class status” because these skills are at the core of continuously improvements (Khan & Cooper, 2001).


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6. Analysis: The case of NordNav Technologies NordNav Technologies is a newly founded company with a history of little more than one and a half year at the point of this thesis being written. For the firm there is need for a wide and thorough strategic analysis; especially as NordNav is so firmly set on growth. From an academic standpoint, the newly founded company is an attractive subject for study as the dynamics of small firm growth are apparent. The following subchapters will attempt to provide a holistic view of the New Technology-Based Firm NordNav Technologies in relation to the framework and models presented in Chapter 3 and Chapter 5. The analysis is based on the year-long case study conducted in the firm. The analysis will start of by examining NordNav Technologies in general and from a business growth perspective in particular. The barriers to growth are also discussed which will eventually lead the analysis to the resources of the firm. There are separate subchapters dealing with strategic technology management, human resource management, and strategic intellectual resource management respectively and several strengths and weaknesses are identified concerning these issues. Product development and the critical success factors that govern this core process of the firm are reviewed in the subsequent subchapter. Organisational blueprints have received a prominent place in the analysis because of the huge effect that aligning human resources to the culture of the firm have on business success. The final part of the analysis deals with the development and acquisition of intellectual resources.

6.1. Business growth NordNav Technologies is based in an industry with a strong emerging market [as shown in Appendix 1], this environment together with the unique NordNav technology holds the promise of many future possibilities. However, there is an apparent risk that NordNav will make bad decisions while still being able to show growth, which is something Porter warns about (Porter, 1980; Chapter 3.2). The dynamic capitalism typology (Figure 6-1) developed by Kirchhoff and described in Chapter 3.1 could be used on NordNav Technologies to describe the state where NordNav is today and where they aim to be tomorrow.



Self constrained

Resourceconstrained

High

Low

Low High


Business Innovation

Rate



Self constrained

Resourceconstrained

High

Low

Low High


Business Innovation

Rate

Preferred route

Present situation

Figure 6-1: Dynamic Capitalism typology; with NordNav’s present and preferred situation.


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NordNav started with (a) low business growth rate and (a) low business innovation rate. This is where all new businesses start out, but with the introduction of the first products and the master plan describing new products, NordNav is firmly aiming at the “Glamorous”-quarter in the typology-model. At present time, NordNav regards itself as being positioned in “resource constrained” growth because NordNav is entering a phase of high business innovation rate but still has a low business growth rate. Only when NordNav can present a high-volume product on the market will they have the chance at entering the glamorous field. However, in order to stay there, NordNav have to keep up their high business innovation rate. For Nordnav to move into the Glamorous field, it will put stress on the organisation which will require good management skills. To avoid the prospect of making poor choices NordNav is currently building up a professional structure with external help in some strategic activities to support decisionmaking. NordNav way of attracting external help is supported by Deakins & Bussouaras (2000; Chapter 5.6) who link external directors to business success. Many firms in the venture segment (as described my Meyer (2000) in Chapter 3.1) will not admit to being “self-constrained”, as these firms are so strongly set on growth. However, NordNav’s decision to grow organically and slowly could also be seen as a way of constraining themselves. Could they be experiencing higher growth if they had focused more on what NordNav calls “speculative growth”? This is possible, and something that NordNav as a company should be aware of. As seen in chapter 3.2, most small firms contribute their lack of growth to external factors (Företagarna, 2003). By doing this they may be blinded by the factors within the firm that limits success. One risk that NordNav Technologies is facing concerning growth is that they are potentially liable to fall into the “Ambitious firm”-quarter of the Kirchhoff dynamic capitalism typology (Saemundsson, 1999; Chapter 3.1). In the long run, NordNav must continue to innovate their business to ensure continued growth. In a future market where software GPS is standard technology, NordNav Technologies must still be able to stay ahead of the competition so that they don’t end up a “one-hit-wonder”. NordNav’s barriers to growth can, as for all ventures, be divided into internal and external barriers (Chapter 3.2). As this thesis has focused on internal factors, it is mostly the internal barriers that will be discussed from here on. As long as NordNav is unable to raise any venture capital, financial resources will be the largest barrier for growth, at least according to the company itself. This is because NordNav tries to follow two guidelines; to always have a customer oriented focus on all development, and to never do anything unless the finances are in place [Appendix 1]. Both these guiding principles are founded on risk mitigation but the second one has more obvious operational implications for the firm. Lack of monetary resources makes many material resources, such as equipment, computers etc, harder to obtain. However, even more critical is the fact that NordNav will have more difficulties attracting personnel resources because of weak finances and some of the planned future developments may not be carried out according to the set plans. The financial barrier is currently viewed as the biggest barrier of all for NordNav. However, finances are only a means to an end. In fact, it is the resources that the financing is going to provide, which are the true critical barriers to growth. While some managers view this as pure semantics or philosophising, it is still an important distinction to make. This thinking can help a firm prioritise and making do with what they have instead of waiting for money that may never come. There are other ways of acquiring resources than through paying for them straight up. For some firms financial difficulties may actually come as a blessing in disguise as they are forced to re-evaluate their overall business proposal.


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There are currently two important order-winning criteria for NordNav. These are the expert knowledge of the initial founders in the area of GPS positioning with the signal processing and in software development; with the patented software receiver technology [Appendix 1]. Companies that approach NordNav today see these two resources as the unique qualities of the company. Often they are interested in working with NordNav in research-related areas simply because they are the most advanced company within their particular field. While competence and technology are the two order-winning criteria of today, it is probable that these will change in the future. There is already some movement on that matter as NordNav is more and more becoming more of a product-oriented company. The current customers of the R20 are looking at what the product can do in terms of features and are becoming less interested in the technology itself (nonetheless, it is important that this is a very small difference in degrees as the buyers are still very research-oriented). Today, buyers are more or less forced to come to NordNav because no one else can offer a similar product. However, sometime in the future, it is very likely that price and functionality will be the main order-winning criteria on the GPS software market. In that case, the company will have to make several strategic changes on both organisational and market approach. For example, production issues that are of very little concern today will have a greater importance in the future.

6.2. Resources Lack of resources is a barrier to growth, but as mentioned in Chapter 3.3 it is the actions that a firm takes with respect to its resources and not the actual resources themselves, that affect firm’s performance. In the same chapter Boxall (1999) explains how the ability to learn faster and apply new knowledge more effectively than its competitors, is the main competitive advantage. This implies that it is not the resources the firm has today that determine the winners of tomorrow; it is what the companies do with their resources that matter. Some of the most important internal resources from the perspective of NordNav are analysed using the VRIO framework from Chapter 5.6 to get fuller picture of their influence on competitiveness [Table 6-1]. The resources listed below were provided by NordNav management and are not ranked in any way in this presentation. Table 6-1: The VRIO framework with analysis on NordNavs most important internal resources

Resource Valuable Rare Costly to imitate

Efficiently organised

Competitive implications

IPR assets, the technology used

Yes Yes Yes Yes Sustained competitive advantage

Team values Yes Yes/No No Yes Competitive parity Key customer relations

Yes No No Yes/No Competitive parity

R20 Product Yes Yes/No No Yes/No Temporary competitive advantage

Market channel and networking partners

Yes Yes/No No Yes/No Temporary competitive advantage

Expert technical knowledge

Yes Yes Yes Yes Sustained competitive advantage

Proven “track-record” Yes Yes No N/A Temporal competitive advantage


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This tool straightforwardly shows which resources that have a sustainable competitive advantage and which resources others could imitate to some degree. Knowing what competitive implications a resource has is essential for all companies. The only field in Table 6-1 that is most easily addressed is the “Efficiently organised” column. Therefore is it necessary that all resources that are deemed to be important are efficiently organised in the company. Table 6-2gives some further depth to the resources presented above. Table 6-2: NordNav resources in depth

Competitive implication

Resources Why is it an internal resource What could be improved/how to obtain the advantage

IPR assets, the Technology used

NordNav has two IPR applications at the moment; one of the applications is for the core signal processing technology which also could be used in other technology areas. The technology that NordNav uses is developed with around 10 man-years research and so far no-one else have reach the same result as NordNav. It is very well implemented in the organisation

Keep protecting the technology so that it will be even harder to do something similar without infringing NordNavs patents Sustained

Competitive advantage Expert

Technical knowledge

NordNav have a unique knowledge and one of the most important things are that the technical people have skills in all areas required for working with Global navigation satellite systems. The complete set of knowledge was also the reason for the initial academic success.

Through high-end assignments like the work with ESA will NordNav keep their technical knowledge as an competitive advantage

Market Channel and networking partners

NordNav have created some strong partnerships with different companies. Because of their expert technical knowledge are other companies willing to work with NordNav to get access to this knowledge (e.g. Texas Instruments) NordNav also have few but strong market channels (e.g. Navtech GPS Supply) that are constantly improved. NordNav is using the No. 1 distributor of GPS research products in the world, for the first R20 product. Some of the future business will come through these partnerships.

Keep building networks and market channels. It is also important to maintain the current partners so that they want to continue the relationship

R20 product The first sold product in the world based around the software technology that NordNav use. This product will have semi-followers in the future even though they will be slightly differentiated from NordNav R20. NordNav are using the receiver as a proof of concept of the technology.

Keep developing the technology with the help of the R20 product. In the future there will be followers and then it is important to continue to have the products as a proof of the outstanding technology

Temporary competitive advantage

Proven “track-record”

NordNav are using the proven “track-record” together with the R20 product to show the feasibility of the new technology.

Keep building track-records from successful customer cases

Competitive Parity

Team Values NordNav are built with strong team values and much of the work is built around trust. This means that the company for an example don’t need to have extensive monitoring of the personal. The team values are also important when it comes to more hectic periods of work and for an example the economy is fragile.

When the company hire new personnel is it important that that could agree on the values of the company.


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Key customer relations

NordNav has a will to create strong customer relations and they have succeeded in a few cases (e.g. Kongsberg). Having strong customer relations are very important when a new technology is introduced on the market. The initial customers will also be the pioneers for the new technology.

Continue to create a few but very strong relations to key customers. It is important to examine the different relations so that the efforts are on those that are fruitful.

NordNav’s goal is to have a very adaptive organisation that learns fast. This will create new resources that are either in competitive parity, temporary competitive advantageous or sustained competitive advantageous. This attitude is supported by written internal policy documents, especially concerning technology aspects of the firm [Appendix 1]. The goal for human resources is also to be very adaptive, but this area has fallen behind the technology side and is currently lacking in both strategic focus as well as in official policies. The possibility to adopt and learn fast is more important in new emerging markets where technology development is accelerating. NordNav’s environment will constantly change through emerging legislation and technological breakthroughs. NordNav must reflect this pace in their management of internal resources.

6.3. Strategic Technology Management NordNav Technologies claim to have recognized the importance of the core technology and the importance of further technological development from the very founding of the firm. One of the first activities in the company was to refine the technology that was used in the academic research and to develop a running prototype of the receiver [Appendix 1]. One of the basic guidelines, or ‘guiding stars’ that NordNav follow [Appendix 1] has been to always do customer-oriented development of the products. This means that there should always be customer requirements that the research is build around. An approach like this will help NordNav to overcome the difficulties of commercialising R&D that many small companies face (Love and Roper, 1999; Chapter 5.1). One example of customer-oriented development is the R20 product that was developed on the requirements of the two first customers of the product. This has been a successful approach for NordNav that had lead to two more sales even though no marketing was conducted. The following product in the same family will be based on the customer feedback to keep the advantage with adopting the customer requirements and overcome the difficulties with commercialising the product. The drawback of this approach is the possibility that projects with such closeness to the customers end up claiming too many of the limited resources and become difficult to abandon (such as the ‘white elephants’ in Chapter 5.5). Chapter 5.1 describes the risk of small companies discarding their long-term strategic plans for more short-term possibilities. NTBF’s often lack resources (financial resources being discussed in previous subchapter) that leads to more short-term views taking precedence. It takes a great deal of management skill to master this threat of resource shortages for small companies. According to Scott (2001; Chapter 5.1) is it always beneficial to prioritize the long-term projects (as long as these are possible). NordNav has had exactly the same problem as described in the literature; long-term goals have been postponed for short-term projects that will ensure short time NordNav survival. However, since the employment of the General


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Manger, NordNav has started developing a basic formal project structure. One of the most important strategic planning tools for NordNav is the master plan, which is used to establish both short and long-term goals for the work tasks [Appendix 1]. One way of analysing how NordNav are working with technology strategy is to evaluate how NordNav handles the five major factors that Jones and Smith present; accumulated technological competence, external orientation, organizational specialisation, internal strategic cohesion and management skills [Table 6-3] (Jones & Smith, 1997; Chapter 5.1). Table 6-3: NordNavs Modus Operandi of the five factors which influence corporate technology strategy[see also Appendix 1]

Major factor NordNav Modus Operandi of the factors Effect of NordNav’s

modus operandi Accumulated technological competence

NordNav’s core team has a wide area of knowledge within the GNSS area. The team has not been extended since founding but in the near future competence gaps will be filled with new employees.

NordNav has a team that easily adapts to the changes technology environment.

External orientation

NordNav has always been working with Luleå university of technology and lately the Swedish Space Board has been working closely with the firm. NordNav had also been working closely with their first customer in developing products.

NordNav is continuously increasing their external orientation with the aim of creating a larger knowledge base within the company.

Organizational specialisation

NordNav has a very small and flexible organisation. For an example, NordNav is always working where it is most efficient for that moment (Luleå, Stockholm, etc). It is a flat organisation where everyone’s opinions are respected and taken care of.

NordNav is very fast to adopt new ideas and innovations are very quickly implemented into the technology.

Internal strategic cohesion

The lack of monetary and personnel resources in NordNav have forced NordNav to prioritise more short-term projects even though everyone agrees about the importance of the long-term project (embedded receiver)

NordNav can not implement the long-term strategy until there are resources to do that, this delays the possibilities to find a market entry and might also open up the market for other players.

Management Skill

NordNav is using a tollgate decision model for all research and development. According to this model there are several instances where the management of the company decides whether to proceed with the project, cancel it, or put the project on temporary hold.

The directly involved in the technological assessments from entire management group is enabling a successful strategic technology management work in NordNav

Table 6-3 reveals that NordNav has apparently been working with the right approach to Strategic Technological management right from the start. There are still many things to improve though, but there should be a readiness in the firm to adopt a more strategic technology orientation. This may also help the firm to address the most critical issue, which by the company is deemed to be the lack of resources to proceed with the long-term plans. Most of the R&D for NordNav is focused on development, in the industry where NordNav operate is research both hard to finance and become profitable. The little research conducted in the company is around applied research and process improvements. The development is lead by customer specification and a scanning of the market for requirements and possibilities is a part of the actual technology/product development process. NordNav have not used a gap analysis model even though they have conducted gap analysis automatically as the tollgate


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decision model involves some gap analysis action points [Appendix 1]. According to Stankiewicz 2003 (Chapter 5.1) there are two extremes of technology development approaches; discovery-driven technologies and design-driven technologies. NordNav want to utilise a design-driven approach to development, even though lack of time, lack of resources and lack of proper management sometimes causes the firm to fall back into discovery-driven design approaches.

6.4. Strategic Human Resource Management NordNav started as a true engineering company where the unique technology and the research on which it was built were central. All of the founders have a background at Luleå University of Technology and in scientific research [Appendix 1]. However, the founders knew that they could not run the company without some administrative expertise. Therefore they made their first hire; a business developer. This was an insightful competence gap analysis on the founder’s part, although they did not think of it in those terms. In April 2003 the business element was enhanced further as General Manager was contracted. Since then there has been a change of focus towards a more complete management of all resources. However, the main focus is still on the technological resources within NordNav. NordNav do not have any human resource management policies and there is an urgent need to coordinate and discuss these matters within the company. Since the two first external persons were employed the company has not seen any need for a gap analysis of the knowledge resources. This is explained through lack of monetary resources which has made it impossible for NordNav to acquire new personnel or acquire skills externally. As mentioned earlier, the lack of funds only mean than there are some difficulties in filling any competence gaps, not that there are no such gaps to fill. There are no complete firms; instead all organisations need new competencies at all times throughout their life cycles. The only thing that does differ between firms is the level of acuteness in the acquisition or development of these competencies. As shown in Chapter 5.2, the small firm is often at a disadvantage compared to larger organisations because important resources are harder to come by for a small or newly started firm. However, one of few areas where small firms can successfully compete is through knowledge and human resources. This is very true for NordNav which have a dedicated team with very talented persons, whom properly developed will give NordNav an advantage compared to their competitors. NordNav does not have any policies or other documentation within the SHRM area, but there are plans to develop such policies in the near future [Appendix 1]. Even though there is nothing formalized there are solid ideas of when to acquire new personnel; what qualities that person should have and how the personal development of the staff should be done. NordNav have an understanding of the importance of the knowledge resources but there is a mismatch in the focus between technological resources and the human resources. As shown by previous research and this thesis conceptual framework the most successful companies must have a balance between the focus on human resources and technical resources (Chapter 5.3). NordNav also need to formalize many of the plans for an example individual competence development plans, competence gap analysis, etc. NordNav must develop their Strategic Human resource management ideas rather soon as the firm has plans to hire new persons during the first half year 2004, and when hiring new


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persons some of this work must have been implemented. The human resource work should be seen as a support to the daily work and when hiring new persons the human resource management models should be used as a basis when finding the right person. NordNav has not implemented any plans of competence development of the existing personal, this plans must also be followed by plans how knowledge investments could be transformed into something that has a value on the marketplace (Rogers, 2001, Chapter 5.2). The general manager’s idea is to continually conduct a competence gap analysis, which is one of the parts of a properly implemented human resource management strategy [Appendix 1]. The competence gap analysis should have the demand of competences for the coming period and compare this with the competence that exists today within NordNav.

6.5. Strategic Intellectual Resource Management As in the previous subchapters NordNav has been working with the strategic management of technology in a proficiently good way but there is a clear lack in the strategic management of human resources. The SIRM framework developed in the Chapter 5.3 suggests that firms that do have a balanced management between strategic human resource management and strategic technology management will perform better then companies with an unbalanced focus. NordNav has already recognized the importance of the technology and the knowledge within the personnel but they are still separated. With the SIRM framework a mutual concept could be developed and stronger links between SHRM and STM would thus be created. The SIRM framework has no merit on it own, it need to be used in a context. For new technology-based firms is that context the product development process. NordNav is working with the product development process a lot and the earlier mentioned tollgate model support this process. It is through the product development process the company will be profitable and therefore is it also important that the right input is used in this process.

6.6. Product development The product development is central to NordNav; other business functions like product distribution, bookkeeping etc are held outside of the company. When the General Manager was hired in spring 2004 he implemented a system of tollgates [Appendix 1]. The tollgate model of product development implies that development decisions have to pass through several gates on the way from an idea to a final product. The main tollgates used by NordNav Technologies are: TG0 Decision on start of pre study based on identified business opportunity TG1 Decision on start of project feasibility study TG2 Decision on execution of the project and approval of business plan TG3 Decision on investments for supply, distribution and launch TG4 Decision on limited introduction to the market TG5 Decision on general availability to the market Each tollgate decision has several questions that need to be addressed before the next phase in the process is entered. The tollgate decisions have to match the overall Master plan [Appendix 1] which gives a picture of the short-term future.


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The tollgates used by NordNav closely follow the phases described by Pileman (2002, Chapter 5.4) in the generic development process (Figure 6-2).

recognition of need

investigation of need

product principle

product design

production preparation

execution

Figure 6-2: A generic development process (Pileman, 2002) (Own).

Cooper (1994) [chapter 5.4] shows that it is during the first stages of the product development process that success or failure is decided. In the same study he also shows that products with good preparation and pre-development activities will be twice as successful, have double the market share and have higher profitability then products that do not have these activities. The tollgate decision model ensures good pre-development and planning activities which will help NordNav become more successful in the product development process in the future. Chapter 5.5 depicts a model for critical success factors that affects the product development process. Table 6-4 reveals how NordNav work and handle these critical success factors. Table 6-4: How NordNav works with the critical success factors affecting the product development process [from chapter 5.5]

Success factor Modus operandi for NordNav concerning the success factors Top management support

Since NordNav is such a small company the entire management is involved in the product development process. NordNav uses cross-functional teams for the product development ensuring that al parts of the organisation are involved in the product development process. There are some risks with this as well, as everyone is so deeply involved in the process, that there will be prestige involved in projects, which may make it harder to end the project if it is found not to be profitable.

Strategic planning

NordNav have both the tollgate decision model and the Master plan helping NordNav conduct strategic planning. The biggest problem is however that because of lack or resources NordNav has prioritised short-term plans instead of the long-term projects.

Market alignment NordNav is trying to work towards satisfying customer demands when conducting product development. Working closely with customer will ensure a market alignment in the development process. In the tollgate model is also questions to address about the target customers for the product.

Intellectual resource alignment

NordNav is a small company where much of the knowledge and resources are spread on a few persons. This fact makes it easier to include the right people and resources for the product development projects. In the future as NordNav grow there is need to more methodically monitor the needs and try to fill them internally or externally. The tollgate model again fulfils some of this need.

NordNav has a good structure for the strategic technology management involved in the product development process but there is a clear lack in the Strategic human resource management. This is especially apparent in intellectual resource alignment where the alignment is handled only for specific projects and not on a more holistic or strategic product development level. Table 6-4 also reveals that there is a lot of management skills needed to be able to conduct the important long-term projects, especially when there is a lack of resources. Since the entire management is so involved in the product development process there are also a clear risk of prestige that will hinder the right decision from a business perspective. In the case of


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NordNav, there is also a risk that the few employees will be overworked with everyone being involved in too many projects at once. The founders of NordNav were the first in the world to show a pure software GPS receiver running in real-time during year 2000. Today there are many other groups trying to achieve the same result but NordNav has kept the frontier position of the Technology and are now first to commercialise this technology idea. For NordNav is the ability to fast implement customer requirements for the early adaptors on the market a key asset. The ability to quickly customize the products after customer needs also helps the company to sustain the temporary leadership. However, this will prove to be increasingly difficult as more competitors will enter the new GPS market. NordNav is in the process of launching their first standard product on the market which is estimated to be in April 2004 [Appendix 1]. Some of the objectives for this product are: keep the leadership within pure software GPS receivers, get a large market share within a very specific niche market and to get a positive cash flow from a product on the market. This niche is research groups that conduct research within Satellite Navigation and research group are often the earliest adopters of new technologies and new products. So from the foundation of the company NordNav is trying to reach a market alignment by reaching for the niches where there is a market. The goal for NordNav, by being a pioneer, is to get a successful market entry so that NordNav could be the first and most profitable player. Being first on the market only leads to opportunities for achieving positional advantages, market share dominance and large returns. The actual result comes down to resources, management skills and creativity needed to exploit these opportunities. NordNav have a goal to quarterly identify the competence gap for the coming 12 months and if such an analysis is also carried out with the special needs in mind of being the pioneer and market leader [Appendix 1]. NordNav believe that they will have a good chance of competing with the followers on the market.

6.7. Organisational Blueprint The organisational blueprint discussed in previous chapters (Baron and Hannan, 2002) is a tool used to analyse the organisational model that firms use and merits a special mentioning in this analysis. The organisational model will have implications on how the company handles their strategic human resource management. The model has 5 distinct blueprints: Star, engineering, commitment, bureaucracy and Autocracy/direct control, all blueprints that not fit any of theses five categories are called Non-Type. There are advantages and disadvantages with the most of the blueprints, making it impossible to say whether blueprint A or blueprint B is better then the other one. The blueprint a company use must be matched with the goals, plans and background that the company has. NordNav has an engineering background in the company but is today more of a combination of a star and an engineering company [The research by Hannan and Baron (2002) clearly shows the essentials of choosing one blueprint and sticking to it. Companies changing the blueprint on the way performed less on almost all parameters studied compared to companies that still used their original blueprint. This is essential for NordNav to understand especially since there are some different opinions within the management group [Appendix 1]. NordNav should choose a blueprint that fit the organisation in the long run, a blueprint that matches the plans and goals for NordNav. If a blueprint instead is chosen with the current parameters there might be a need of change it in a couple of year which could have serious implications on the performance. Table 6-5][Appendix 1].


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The research by Hannan and Baron (2002) clearly shows the essentials of choosing one blueprint and sticking to it. Companies changing the blueprint on the way performed less on almost all parameters studied compared to companies that still used their original blueprint. This is essential for NordNav to understand especially since there are some different opinions within the management group [Appendix 1]. NordNav should choose a blueprint that fit the organisation in the long run, a blueprint that matches the plans and goals for NordNav. If a blueprint instead is chosen with the current parameters there might be a need of change it in a couple of year which could have serious implications on the performance. Table 6-5: NordNavs organisational blueprint, with NordNav position in grey.

Characteristics Attachment Selection Coordination/

Control









Dimensions Characteristics Attachment Selection Coordination/

Control









Dimensions

There are differences between the founder’s view of things to look for when hiring new persons and the general manager’s view [Appendix 1]. The founders have an engineering view of the qualifications of new persons where they look more after current experiences and skills to carry out specific often immediate tasks effectively. The general manager has more of a Star view of selecting employees where potential and talent is more important and where focus is on the ability to perform in a lot of different of projects over the time, i.e. the long term potential is important. These differences in the view of looking after new employees could be troublesome for NordNav when it is time to start growing if not addressed before the employment process starts. Marlow (2000) [Chapter 5.7.2] describes four different thresholds

• Entry threshold – first employee • Delegation threshold – first manager • Formalisation threshold – formal recruitment • Function threshold – professional personnel employed

It is important that a company chose their organisational blueprint before the formalisation threshold is entered. After this threshold the problem with changing the blueprint will arise. For an example if persons are employed to the company with the impression that it is a company that has an engineering blueprint and peer/cultural control they might not be


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comfortable in a organisation with Professional coordination/control. When NordNav will start employing people in the beginning of next year they will enter the formalisation threshold. Before then, NordNav must consider the choices related to hiring and organisational blueprint. NordNav started out as a true engineering company without any professional control and mostly peer-control of the work done [Appendix 1]. Since the engagement of the General Manager NordNav has started to implement some policies and way of working on the technology assets which will give NordNav a guidelines of how to work. One of the more important results of this work is the efforts to create a company guide [Appendix 1]. The company guide should be a representation of the way NordNav work and operate so that everyone internally at NordNav has the same view of the company. All new employees will get their own version of this so they could easily get an understanding of how NordNav operate. This is one of the more important works to describe the culture within NordNav and the aim is to help new employees to adopt the culture in NordNav.

6.8. Developing Intellectual Resources The Strategic intellectual resource management suggest that in New Technology-Based Firms human resources and technology resources should be handled together as intellectual resources. From the theory we also learn that the intellectual resources could be either developed or acquired. The SIRM framework relies on existing strategic human resource management and strategic technology management theories. Development of technology and products could be done either internal or external. Internal development of new products requires that firm have in-house research or development capabilities. Currently, NordNav is using both strategies in the technology development processes. NordNav’s core business is the software development, but for all other parts of the development (e.g. hardware) NordNav is trying to find partners/consultants that could conduct the development [Appendix 1]. NordNav also use consulting or professional services as a tool for competence development. The professional service assignment helps NordNav stay at the very edge of the research frontier. To use external assignment for internal development could be use in both competences and technology development. Small companies often have an advantage over larger competitors because the more flexible organisation. NordNav has a goal to continue being a flexible organisation even thought the company is growing. The structure that NordNav is building is only used as support for the more critical processes and it can therefore be argued that is should not be seen as a bureaucratic tool. Bourgrain and Haudeville (2000) states that small companies must strengthen their in-house research to be able to keep their innovative advantage [Chapter 5.8]. As long as NordNav have limited resources in form of capital and employees will this always be hard to priorities. As NordNav are growing is it important to use a part of the budget for this effort so that the innovative advantage will be kept within the company. The first thing to do before starting developing of technology or products is to conduct a gap analysis, which part could be reused and what need to be developed. It is important to combine a technology gap analysis with a competence gap analysis since they are so closely related. The differences between the demand and the supply are the parts that need development. When starting the development of new technologies or products it is important


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to look at what parts that should be conducted in-house and what should be developed with outside knowledge. NordNav has actually done this analysis, either directly or indirectly, most of the time and it is important that this will continue. Since NordNav have recognized the personnel as one of the most important resources are also competence development of the existing personal very important for NordNav. Ylinenpää (1997) [chapter 5.3] states that there are both positive and negative relations between training and company performance and profitability. Therefore, it is very important that the training is in line with the overall strategic goals and business objectives and not just a random training. Davison (2002) have developed a very generic way of aligning human capital to overall strategies. When a gap analysis is done based on the anticipated need compared to the available resources the company will find which skills, abilities and knowledge that must be filled by new employees and which that could be filled by the existing personnel. This should then be used in the planning of the individual development. NordNav does not use anything like this today but have plans to each quarter do a gap analysis that result in competence development plans for each employee. It is very important that NordNav connect the gap analysis with the individual competence development plans so that the competence development plans are not only there for the employee’s personal development but also for the overall goals of the company. It is very important for both the employee and the company to understand that you have to have a match between the individual goals and the company goals to get a good result. All individuals have different objectives which are described in table 5-9 and that is also the reason why there is a mismatch between the personnel desire of development and the companies will. When an individual are a target for competence development it is important that the thing you learn also have a final result of changed output. Berglund and Blomquist (1999) [in Chapter 5.3] describe how individual learning is connected to change output for the organisational learning. To be able to get some effect of the individual learning it is important that the individual knows the purpose of the competence development and that there are very simple routines for how this could result in changed output. NordNav does not have any policy about this today but a model for how individual competence development could lead to changed output for the organisation is something that NordNav should implement in the coming human resource policy. Theory says that a company should follow the long term strategy but many small companies abandon the long term strategy for short term possibilities. There could be several reasons for this, both scarce management skills and lacking strategic knowledge, as well as physical resources. The overall goal for (almost) every company is survival and for many small companies without financial assistance, survival will be the main goal from time to time which makes the company put the long term plans on hold and adopt short term opportunities instead. This have happened for NordNav several times as well, there have been a need of conducting consulting work to survive which have put the long term plans on hold during the work. NordNav have lately tried to solve this by attracting official money for product development so that no consulting will be needed, in the long term are NordNav looking for Venture capital as well to be able to conduct the long term product development. The main focus for NordNav at the moment is a short term product called NordNav R25 [Appendix 1]. But the long term product is an embedded version of the receiver. To be able to go ahead with this product development NordNav needs to acquire 1) customer requirements that help NordNav do customer oriented development and 2) The physical/financial resources.


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Technology acquisition could be done either external or internal. Deciding where it should be done is dependent on the level of understanding the technology by the external third party and by the level of understanding of the technology by the acquiring business. [Figure 5-17] NordNav have used the proposed strategies for acquiring external technology/knowledge. Example of this is software development of a USB driver and a hardware PCB board design that consultants have done [Appendix 1]. This is because their knowledge is much higher than that of NordNav. Some of the co-operations that NordNav are trying to reach are in areas where both parties have a high level of understanding the technology. One thing to remember when talking about acquiring external technology is that without the internal knowledge of what to look for is there always a risk that the deliverables will cost much more because of late changes etc. The need of control of the technology is also an important factor when deciding about external or internal acquiring of the technology needed. Technologies of great value for the core business should for an example be held in-house. NordNav will need to do the same analysis about this so that no “core” technologies will land outside the company. NordNav has plans to continuously analysis the competence gap to recognize the need of knowledge resources in the coming year. This will then constitute the foundation for the search of new persons to the company. NordNav will both use short term commitments often as consultants and long term commitments in the form of project employment and permanent employment. NordNav have also developed some core cultural factors that it is important that all new persons should be compliant with: Openness, fairness, courage, trust and dedication.


In-h

ouse

com

pete

nce

leve

l

Low

Hig

h



Complement

Goal

Figure 6-3: 2 types of competence deficiency

Most small companies start out being having Low in-house competence level and Narrow range of in-house competencies, but there are big distinction between general SME’s and NTBF’s since a NTBF are often started around an innovation or outstanding technology idea. To be able to understand and develop the innovation further you have to have a high in-house competence level within that area, and the nature of NTBF is often also giving a Narrow range of in-house competences. NordNav have a narrow range of in-house competences together with a very high level of competence level in the GPS technology. This means that NordNav still have to use both compensate and complement approach to hiring new persons. In the future the goal is to have as a broad range possible and a high level on the in-house competencies so that the company


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does not have to rely too much on external competence. NordNav has been working with external groups/persons in the acquisition of new technologies but this process of using external partners could be expanded and be more consequential.


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7. Conclusions The aim of this study was both to increase theoretical knowledge, as well as provide practical advice to New Technology-Based Firms in general, and NordNav Technologies in particular. This chapter on conclusions is primarily focused on giving firm-specific advice, but also puts the study into perspective by going back to the conceptual framework of Chapter 5.3 and the research questions posed in Chapter 3.5. The chapter is divided into four subchapters; The conceptual framework, General conclusions, Specific conclusions regarding NordNav Technologies, and Research questions revisited. The conclusions start of by revisiting the conceptual framework. The second subchapter is more concerned with answering the first general research questions serve as a collection of suggestions for New Technology-Based Firms on how to address specific issues of intellectual resources. The third subchapter concentrates on NordNav Technologies and the specific questions associated with that firm. The fourth subchapter briefly shows how, and to what extent, the research questions were addressed.

7.1. The conceptual framework revisited In chapter 3.4 a proposition is presented that a conceptual framework should be developed that intersects three general theoretical paradigms [Figure 7-1].



Management


Conceptualframework



Management


Conceptualframework

Figure 7-1: Bridging the gap between strategic technology management, strategic human resource management and small firm management.

The broad framework of this thesis is developed by putting forward the idea of intellectual resources. After this is done Strategic Technology Management can be joined with Strategic Intellectual Resource Management into a new concept; Strategic Intellectual Resource Management (SIRM). The success of New Technology-Based Firms is often dependant on their management of the core resources, which is why SIRM should be implemented as a strategic approach for firms in this context. In a wider sense the SIRM approach must also be fitted to the core process of the firm, described in chapter 5.4 and 5.5 as product development. Figure 7-2 depicts two models representing these two views, which managers of NTBF’s at all times should keep in thought. No strategic decisions of any kind should be carried out by the firm without analysing their effects using these simple and straightforward models.


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BUSINESS LEVEL

TECHNOLOGY LEVEL

INDIVIDUAL LEVEL

KNOWLEDGE LEVEL

PRODUCT LEVEL

Focus: Organisation, networks and business portfolio, marketing & finance

Process: Strategy development and implementation

Focus: Product/Service portfolio, manufacturing and operations

Process: Innovation, new product development and introduction

Focus: Technology-science-engineering base

Process: Technology management to maintain technology base

Focus: Employee portfolio, personnel development and operations

Process: Hiring, training,

”Know-why”

”Know-what”

”Know-how”

”Know-when”


Process: HR management to maintain knowledge base

BUSINESS LEVEL

TECHNOLOGY LEVEL

INDIVIDUAL LEVEL

KNOWLEDGE LEVEL

PRODUCT LEVEL









”Know-why”

”Know-what”

”Know-how”

”Know-when”

BUSINESS LEVEL

TECHNOLOGY LEVEL

INDIVIDUAL LEVEL

KNOWLEDGE LEVEL

PRODUCT LEVEL









”Know-why”

”Know-what”

”Know-how”

”Know-when”


Process: HR management to maintain knowledge base

Product development

process




of resources



(project selection)

Strategic planning


Market alignment

Product development

process






of resources



(project selection)

Strategic planning


(project selection)

Strategic planning


Market alignment


Market alignment

Figure 7-2: Two important theoretical assumptions; SIRM-hierarchy and critical success factor for the product development process (Both figures own).

7.2. General conclusions The general conclusions could be read as a collection of suggestions for New Technology-Based Firms on how to address specific issues of intellectual resources. In Chapter 3 it was shown that newly founded firms are often at the mercy of the environment and the availability of scarce financial resources. What they do have on the other hand is an innovative technology and the competence inherent in the founders and employees of the start-up; the intellectual resources. With limited financial resources plaguing most NTBF’s it is even more critical that intellectual resources are handled optimally. The financial barrier is currently viewed as the biggest barrier of all for NordNav and many other New Technology-Based Firms. However, finances are only a means to an end. In fact, it is the resources that the financing is going to provide, which are the true critical barriers. This thinking can help a firm to prioritise and making do with what they have instead of waiting for money that may never come. For some firms it may actually come as a blessing in disguise as they are forced to re-evaluate their business proposal. Firms who do not perform well are often forced to think more critically about what their core resources are, and how they must be managed for success Understanding which resources that are the most valuable and what competitive implications they have, is of great importance for all companies. Sometimes is too much effort is put on resources that others could easily obtain. With limited resources is it also important to prioritise on those resources that could be competitive advantages. The VRIO model (Chapter 5.6) is a perfect tool to get a better understanding of the resources on what implications they have. Unfortunately, the lack of resources (monetary, competence, personnel, etc) force new technology-based firms into conducting only short-term planning instead of trying to plan further ahead. This may also cause the company to fall into discovery-driven technology development instead of the design-driven technology development aimed at generating actual products [as described in Chapter 5.1]. This, together with short-term planning, will hinder companies from reaching the higher level of success and discovery-driven design could turn out to be very expensive for the company. The best ways to avoid these pitfalls are to align the technology research and development together with the organisation and business strategy [Figure 7-3]. The only way of doing this is to have a structured and planned approach to the


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R&D activities. You also need to evaluate how the process is going in comparison to the overall business and corporate strategy, both today and into the future.

Project Strategy


Corporate Strategy

Business Strategy

Portfolio Strategy






Research

TechnologyStrategy

Development

Figure 7-3: A model for aligning technology research and development with corporate and business strategy [from chapter 5.1.4]

If the R&D is not aligned with the overall goals, it is advised to either dispatch the project or change the process so that it is aligned again. This could sometimes be hard for managers in small companies especially if some money already have been spent on the project and they face the risk of becoming resource consuming White Elephants (from the Project Portfolio Matrix, Chapter 5.6). Many NTBF’s ignore the fact that the most successful companies are working with both technology and human resources on the strategic level. The strategic human resource management also has to be aligned with the overall business. The six-step model for aligning the human capital to business developed in Chapter 5.2 will aid new technology based firms implementing human resource management strategies into the company [Figure 7-4].

HR Strat

egy &

Plan

ning


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION

HR Strategy & Planning

Org

anisa

tiona

l asp

iratio

n

HR Strat

egy &

Plan

ning


Personal aspiration

STRATEGIES

OBJECTIVES

MISSION

VISION

HR Strategy & Planning

Org

anisa

tiona

l asp

iratio

n



















Figure 7-4: Aligning human capital to overall business goals [from chapter 5.2]

By implementing this method and following these six steps (in a SIRM context) the small firm will have a good chance to succeed in their Strategic human resource management work. For companies in general and new technology-based firms in particular is it important to have a balance between the technology management and the human resource management strategies. Literature clearly shows a connection between human resource management work and success and this is a fact that many small companies ignore. New technology-based firms must work with both technology and human resources on the strategic level to explore the full potential within the company.


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All firms need new competencies at all times throughout their life cycles. The only thing that does differ between firms is the level of acuteness in the acquisition or development of these competencies. Firms that claim that they do not need any new competencies are not trying to achieve their full potential. Often firms will argue that it is the lack of financial resources (as mentioned several times before), or time, which hinder them from compensating or complementing their knowledge-base. However, there are always ways of getting around this; that is, if the company has a will to do so. Many small NTBF’s have already recognized the importance of the technology and the knowledge within the personnel but they are still separated. With the SIRM framework a mutual concept is developed with links between human and technology resources, which will jumpstart small companies thinking about achieving a more balanced management. However, the SIRM framework needs to be used in a context to be able to fulfil its role. For NTBF’s the product development process is the main activity within the firm. The strategic intellectual resource management should be used as input and support the process. Many activities in the product development process needs the structure and help from the SIRM framework to be successful. Past researches show that there is clear connection between strategic planning and success of the project. Products with good preparation and pre-development activities will be twice as successful, have double the market share and have higher profitability then products that don’t have thus activities (Chapter 5.1).The management of Strategic intellectual resources will then be the basis for the success of the product development process. The critical success factors of the product development process are described in Chapter 5.5: Top management support, strategic planning, market alignment and intellectual resource alignment reveals how the prerequisite is for a company to perform in the product development process. [Figure 7-5].

Product development

process




of resources



(project selection)

Strategic planning


Market alignment

Product development

process






of resources



(project selection)

Strategic planning


(project selection)

Strategic planning


Market alignment


Market alignment

Figure 7-5: Critical success factors affecting the product development process [from chapter 5.5]

Small organisations have an innovative advantage because of their more flexible structure, this is however not a static advantage so small companies have to prioritise technology development and research in the budget so that the innovative advantage could be kept. A good practise is to analyse the product development process and to constantly monitor the critical success factors to become aware of any missing components. This will ensure that the company have the right requirement for successful product development processes. Market alignment is essential for all companies, it is important to have an understanding of the market and what it demands when doing product development. Being a pioneer on a market will put even higher demands on the market alignment since there are probably only early adopters that are willing to try the new product. Being first on the market only leads to opportunities for achieving positional advantages, market share dominance and large returns;


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the actual result comes down to resources, management skills and creativity needed to exploit these opportunities. Coming up with a new technology or approach the new technology-based firm has no choice but to become a pioneer/leader. There is little sense in giving up an existing advantage in time. There is not necessarily that much choice involved; either enter as a leader or do not enter the market at all. All companies have an organisational model, or blueprint. Because the lack of human resource management this is something that in many cases develops naturally without any real thought. This is unfortunate considering the effect that this blueprint has on returns and business success (Chapter 5.2). Also, having to change the organisational blueprint in the future could be fatal to business operations and create unnecessary stress on the organisation. However, time is at an essence in choosing an organisational blueprint. Growing firms always passes four different thresholds: the entry, delegation, formalisation and function threshold (Chapter 5.2). The blueprint has to be chosen before the third threshold where the formal recruitment is started and the blueprint is formalised. When choosing a blueprint is it also important to remember that the blueprint has to fit the organisations future goals and plans, and not just the situation today. Development of technology and products could be done either internal or external. Internal development of new products requires that firm have in-house research or development capabilities. When starting new development project is it important to start with a gap analysis of both technology and competence gaps. Then the second step is to analysis what parts that should be conducted in-house and what parts that could be developed by external competencies. Competence development in a company is very important; the existing personnel could fill the competence gaps that will arise so that external acquirements will be unnecessary. Training without a purpose does not have much value for the company therefore most all training be but into a business context. When deciding on which competences to develop is it important that a gap analysis is performed. The gap analysis will give the need of competences that the company have to develop. When an individual are a target for competence development it is important that the thing you learn also have a final result of changed output. To be able to get some effect of the individual learning it is important that the individual knows the purpose of the competence development and that there are very simple routines for how this could result in changed output for the organisation. Technology acquisition could be done either externally or internally but there are some things to consider before deciding on which approach to use. The level of understanding the technology by the external third party and by the level of understanding of the technology by the acquiring business is one important factor. This together with the need of control of the technology should constitute the basis for the decision of external or internal acquisition. When dealing with competence acquisition is it very important that the organisation constantly monitor and conduct competence gap analysis. Acquiring competence could be done in many ways for an example could a company use project hiring of employee or usage of consultants. The need of competences is also dependent on the in-house competence level


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and the range of in-house competences. The model developed by Ylinenpää on in-house range and levels of competencies [Chapter 5.2] is an excellent tool to use for decisions on whether to compensate or complement new competence, especially if seen in light of the organisational learning process [Chapter 5.6] [Figure 7-6]. Together these models answer the “what?” and “how?” questions of the competence gap analysis.






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Figure 7-6: Range and level of competencies (Ylinenpää, 1997) and the orgnaisational learning process (Berlund & Blomqvist, 1999).

7.3. Specific conclusions regarding NordNav Technologies Even though this chapter deals more specifically with NordNav Technologies others would certainly gain from taking heed of the advice presented here. NordNav Technologies faces several challenges is order to become successful, even though there presently seems to be no end to their accomplishments. However, there is a risk that strong market growth will mask potential internal problems within NordNav (Chapter 3.2). When everything is growing rapidly few people see this as an acute problem. Nonetheless, resources are in fact being wasted if the company does not reach its fullest potential. To combat this, NordNav management will have to be very watchful for all potential organisational problems that may exist today or occur down the road. One of these potential problems is, as the company focus changes from technology to products the order-winning criteria, which ensured business success from NordNav, may change as well. For example, production and service issues that are of very little concern today will have a greater importance in the future. NordNav should prepare for this possible change, at least on an intellectual level. One risk that NordNav Technologies is facing concerning growth is that they are potentially liable to fall into the “Ambitious firm”-quarter of the Kirchhoff dynamic capitalism typology (Chapter 3.1). In the long run, NordNav must continually innovate their business to ensure continued growth. In a future market where software GPS is standard technology, NordNav Technologies must still be able to stay ahead of the competition so that they don’t end up a “one-hit-wonder”. One possible risk associated with growth is that NordNav Technologies, like most other new technology-based firms, is centred on a very limited number of employees. If the core knowledge that these key people hold is not diffused to the rest of the employees in the firm, growth will be very difficult to achieve. In that case, the people with the expert knowledge will be further and further stretched, and will have less and less time to tutor their co-workers.


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Another risk is that a key employee leaves the firm altogether. There is a very real chance that a small and newly founded company will not survive this. At a time when NordNav succeeds in bringing in capital from outside, the firm management must be prepared to handle this new situation. Since NordNav have plans to expand very quickly, it will require a lot of management skills to handle changes in the firm so that growth itself does not become a barrier for further growth. In this scenario the managerial resources may be the biggest barriers for successful growth in the long term. Chances are that that particular competence isn’t available in NordNav when it is needed the most. This managerial barrier might be solved by bringing in an external director who has been through these stages of firm growth before. Of course, it can be argued that NordNav has already done this by bringing in the General Manager, but there is no set amount of external assistance that can be brought into the firm. NordNav have two sustained competitive advantages today (Chapter 6): the technology assets and the expert technical knowledge, or competence. NordNav also have three temporary competitive advantages: Market channel and networking partners, the R20 product and the proven “track-record”. It is essential that NordNav take care of those resources and continue to keep them as competitive advantages. NordNav will also continue to develop new resources that are competitive advantageous because of the ability to fast adopt new knowledge’s and technologies. NordNav has had the same problem as many other new technology-based firms. The lack of resources will keep NordNav in the short-term projects to get short-term revenue instead of the long-term plans. This is not a unique problem for NordNav and with the right strategic tools and proper management skills, NordNav will have the prerequisites required to be successful with the strategic technology management. NordNav Technologies must avoid falling back into discovery-driven research approaches. Because of lack of time, resources and correct management NordNav sometimes lose track of their design process and fall back into “old habits” residual from the academic situation. The master plan that NordNav follow [Appendix 1], is in some way a tool like the “R&D and the strategic decision hierarchy” [Figure 5-3 and 5-4] but this has to be complemented with the critical decisions described in [Chapter 5.1];1). Setting an R&D budget 2) the internal allocation of the budget between the longer term and the shorter term projects 3) the allocation between business-related areas of R&D and 4) the allocations of specific performance-improvements goals to individual technologies or products. NordNav has not worked much with the strategic management of the human resources. There are some ideas how to handle the personnel and knowledge but nothing has been implemented into the daily work. NordNav will soon enter a new phase in the company’s development with the hiring of the next personnel. This will give new challenges to the organisation and the management and therefore is it important that the work with the strategic human resource management has started so that it could support NordNav in the process of enlarging the organisation. Literature clearly shows a connection between human resource management work and success, therefore NordNav must start working on this and the goal should be to balance the human resource management with the technology management. The nature of Strategic intellectual resource management gives you automatically a balanced management of the


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human and technology resources. When using strategic intellectual resource management you must look at the implications of the SHRM when changing the STM and vice versa. NordNav should therefore start using a combined framework were equal focus is on the human and technology resources. This will give NordNav a competitive advantage compared to its competitors that have an unbalanced view of technology and human resources. The group that founded NordNav was the first to show a working software receiver, this advantage have NordNav kept and are today first company in the world to commercialize a software receiver. NordNav have entered the market with products to the earliest adopters (research groups), and the plan is to expand from there. NordNav are trying to achieve positional advantages with being the pioneer with this new technology. Being the first on a market does not automatically provide the positional advantage, the actual result comes down to resources, management skills and creativity needed to exploit these opportunities. NordNav must in the future use some of the budget for research and development to be able to keep their innovation competitive advantage. Until today has this not been able to have been done because of the lack of physical resources and financial resources. NordNav started out as engineering company were attachment was based on the qualities of work and coordination / control was conducted through peer/cultural. With the growth of the company have this changed a little bit and NordNav has today a combination of an engineering and star blueprint. There are different ideas in the management of the company of what blueprint NordNav should use. NordNav must decide which organisational blueprint to use before entering the formalisation threshold which will occur with the next employment so that they not risk a change of blueprint at a later stage. When NordNav should choose an organisational blueprint is it important that they choose a blueprint that will fit the organisation they predict in the future. The blueprint thinking should be included in the human resource policies that NordNav are about to develop. The authors of this thesis recommend that NordNav use either a star or en engineering blueprint or some combinations of them. NordNav have used both internal and external development for their past development efforts. Most of the development has been conducted in-house but it is important that NordNav analyse for every new project what parts that should be keep in-house and what parts that should be conducted externally. Before a development project is initiated is it important that a technology and competence gap analysis is conducted so that information could be used for the decision of internal and external development. NordNavs plans to introduce competence gap analysis together with individual competence development plans will give NordNav an important tool on how to develop their personal. NordNav does also use consulting or professional services as a tool for competence development. External assignment for internal development could be use in both competences and technology development. It is important for NordNav that the competence development is used in a context. It must be but in a business perspective so that the company will benefit form individual competence development. The authors also include an easy model of how individual development could result in change organisational output in the coming human resource management policy. Since the start of the company has NordNav hired both a business developer and a general manager and they are today both partners. However, the competence gap analyses that


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NordNav have done so far have been more based on “feeling” than using specific analysis tools. In the future NordNav should do more frequent analysis of the competence gap and the models should cover both technology aspects as well as the human resource aspects, as advised in this thesis.

7.4. Research questions revisited The research questions presented in Chapter 3.5 have implicitly directed the theoretical and empirical exploration. Returning to them after the study has been completed it is therefore interesting to see how well they have been answered.

How can existing theories help explain the relationship between the core process and the core resources in New Technology-Based Firms, and NordNav Technologies in particular?

The theories based on product development (denoting products in the wider sense) and the critical success factors of the product development process adequately connects the core resources (which are identified as the intellectual resources) to and the core process of business generation. The resources are building-blocks of the core process.

What approach should New Technology-Based Firms, and NordNav Technologies in particular, have towards developing their core resources?

Chapter 5.3 calls for a unified approach to developing resources, Strategic Intellectual Resource Management. By grouping technology resources and competence resources together NTBF’s have the potential of building a strategically sound business around their resources.

What theoretical models should be used by New Technology-Based Firms, and NordNav Technologies in particular, to determine activities associated with managing core resources?

To answer the questions above a conceptual framework is developed in Chapter 5 and analysed from the perspective of NordNav Technologies in Chapter 6. The many perspectives show both the upsides and the downsides to small firm management as it has been conducted within NordNav Technologies and within NTBF’s in general.

How should NordNav Technologies strategically handle R&D and how should NordNav Technologies strategically handle product development? What gives the most value to the company; strong products or strong R&D? Partnership in technology - How can technology networks be utilized by NordNav to strengthen the company.

Chapter 5.5-5.8 handles both the product development process and the acquisition and development of technologies. R&D in small companies should be focused more on development and ideally projects with higher long-term potential should be preferred over short-term. The lack of resources presents a challenge however so long-term potential projects will require a lot of management skills. Product development should be handled in cross-functional teams with high involvement of the management. The tollgate process that


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NordNav use today is an adequate tool for product development. The two last questions have only been handled briefly in this thesis and is a subject for further research. However, as part of the action research process, NordNav was given insights into these issues as well.

Which Organizational model should be used by NordNav Technologies? Small companies often have problems when they start growing since there is no real plan on how to grow and what organization to use.

Chapter 5.2 and 5.6-5.8 discuss the organisational blueprint. The authors propose a combination of either engineering or star blueprint. Most importantly when choosing an organisational model is to choose a model that will fit the organisation of tomorrow so that the blueprint does not have to be changed; something which will cause reduced performance.

How should NordNav Technologies strategically build its competence base? What should be “insourced” and “outsourced” - What competences could be used as consultants and which competences must be in the company? How should NordNav Technologies develop their employees so that they remain in the technology forefront?

Chapter 5.7-5.8 handles the competence acquisition and development. NordNav should use both compensate and complement approach when hiring new personal. The most important issue is to find the right competences needed and the best way to find that is to do a competence gap analysis. Several models for analysing the need of internal and external competencies were presented. The gap analysis will give answer on the last question as well about the technology forefront. One thing to remember is that is very important that all individual competence development activities results in changed organisational output [figure 5-20].

How should NordNav Technologies handle the relationship “right person” and “right competence?” Should the company hire the “best person” or the persons that cover exactly the competence that is needed?

The organizational blueprint that NordNav has to decide on will answer this question. The thesis also suggests that competence gap analysis must be executed before hiring new persons so that the right competence is acquired.


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8. Discussion

8.1. Reflections on the study The main contribution of this study is that of a holistic theoretical examination of New Technology-Based Firms and some specific issues that face these firms. A conceptual framework around intellectual resources the management of these intellectual resources has been developed. At an academic level this has broadened the understanding of these specific firms. At a practical level the firm, NordNav Technologies, has received a thorough analysis of their internal barriers to growth. The mayor problem with conducting a comprehensive investigation like the NordNav Technologies case study, except from being very time-consuming, is that the emerging nature of the firm reflects on the study. Therefore, new insights and needs are discovered as they emerge, which forces the study to change course at several times. While this is the biggest drawback of a study like this, it could also arguably be the greatest benefit, as it adds to the dynamics of the study and ensures that the end-results truly reflect the context of the examined firm. The scientific literature concerned with New Technology-Based firms today has very little advice to give managers of these firms, concerning specific activities. The conclusions are often more related to general remarks; such as “a strategic view is important”. While this thesis has tried to move away from bland comments like this it is often very difficult to give general theoretical and practical advice as each firm and each situation is unique.

8.2. Reflections on further research

The outcome of any serious research can only be to make two questions grow where only one grew before.

-Thorstein Veblen, The Place of Science in Modern Civilization and Other Essays (1919) While conducting a thorough case analysis questions that are not immediately answerable are bound to emerge during the course of the study. Aspects of intellectual resources and their connection with institutional theory could be further addressed. Institutional theory is concerned with the view of the start-up from the perspective of external associates. This is of special importance when it is time for owners and managers of New Technology-Based Firms to consider their “exit”-strategies. What part do the critical resources have in the valuation of the firm and how should resources be aligned to ensure the best valuation from potential investors and venture capitalist? Several metrics could be developed in order to measure the relationship between value and resources. Some studies in this area have been conducted already, but none that take a holistic approach or that pits different technology and competence resources against each other. Connecting strategic intellectual resource management activities with firm growth could be undertaken on a larger scale, with empirical studies of many firms. In Chapter 5.3 the thesis


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makes a bold statement based on purely theoretical reviews (although these in turn are based on empirical studies) that “This combined framework instead suggests that New Technology-Based Firms without a balanced focus on both those management theories will perform less well than companies that have this focus.” This should be put to the test! For this to be done, some metrics of SIRM must be decided on. Love and Roper (1999) showed the difficulties on finding data for human resource management activities in small firms, but it is such an important area of research that it may well be worth the trouble. However, because of the limitation of defined metrics the research will probably have to be based on limited case studies and not financial data. This need not necessarily be a significant problem. The uniqueness of the small firm context will benefit from case studies being used rather than huge data-driven studies, because much more consideration can be given to the special market-industry circumstances. Because so many firms, including NordNav Technologies, claim that financial resources is the main bottleneck of firm development these issues should be studied further. There is some work done within this area today; looking at how young firms handle their finances at founding and later growth. However, a lot has happened after the “boom and bust” of the 90’s and no research has been found that explicably deal with the relationship between financing and intellectual resources. While money is needed to acquire competence, competence is also required to acquire financing. This spiral has of yet not been examined thoroughly. There is a need to construct a generic roadmap for New Technology-based Firms regarding intellectual resources and activities associated with these. Firms should know in what order these activities should be carried out and which resources are more important at different stages in the life cycle of the firm. This thesis has only begun addressing these issues. The protection of intellectual property through patents and such has received some attention from prior researchers. However, the protection of firm resources and especially the intellectual resources has not been considered at depth. Potentially this is a huge problem for small firms. Loss of employees, competences, technology etc can devastate the newly founded high-tech firm. How can these firms guard their resources in such a way that this will not be such a grave issue? This thesis touches on some possible aspects of this, like diffusion and formalisation of knowledge within the firm, but these is still a lot to be done in this area. Certainly there are countless merits of continued research on environmental factors concerning small firms and technology-based firms, even though this thesis sometimes may not give this impression. Why is the environment important even if a resource based view of the firm is chosen? The external environment provides the resources to the firm and also provides the conditions for a firm to act. Opportunities come from outside, but the potential to act on these opportunities come from within the firm. Therefore is critical that this relationship is understood properly. When small firms grow and markets mature the order-winning criteria change. At first the novel technology itself may attract customers but eventually price and other such merits will take over. At what time does the industry go from rewarding inherent qualities to seeking more superficial qualities? These matters influence the competitiveness of NTBF’s at a grand scale.


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Appendix 1. NordNav Technologies This appendix presents NordNav Technologies, mostly from the perspective of… NordNav develops and licence complete software receivers for Satellite navigation. NordNav is a spin-of from Luleå University of Technology and have an academic heritage that influences the company. NordNav is a typical New Technology Based Firm, where the company’s value is much dependent on the specific technology and the knowledge embedded within the employees and the culture in the company. NordNav is looking for venture capital and for that different scenarios of an exit is important, these facts gives that it is important to build a strong company on the right foundation. NordNav Technologies is a company set on growth but that face several considerable challenges.

A-1.1. Background and History NordNav is a Spin-off from EISLAB at Luleå University of Technology (LTU) and is a result of a research program that started at the university 1999. A visiting professor decided to have a project where some students and PhD students worked together in the effort of implementing the signal processing of a Global Positioning System (GPS) receiver in software. The research project was very successful and during 2001 the group presented the first real-time GPS software receiver ever in the world. A lot of acknowledgement and several awards were given to the group. This success motivated the core group to start a company based around the ground breaking technology and during the summer 2002 NordNav was started. By the time the company was founded the technology had over 10 man years of academic research. During the first year of operation NordNav have been very successful in getting governmental and regional financial support. During the first year NordNav also attracted 3 different professional services assignments. To help the financial situation none of the employed was given any salary for the first half year. This helped NordNav sustain the economical situation without attracting any venture capital. During the autumn 2003 NordNav have started selling their first products called NordNav R20 which is targeted towards research and development groups that do research on Global Satellite Navigation Systems (GNSS). The technology used in the products is the ennobled technology developed at LTU. This moved NordNav from a consulting group to a product company.

A-1.2. NordNav’s external environment Since NordNav is a small company with a new technology approach to an emerging market is the external environment influencing and affecting the company in many ways. In the GNSS market is the environment changing very fast (as in all emerging markets) so the changes in the external environment continuously has to be monitored.

A-1.2.1. Global Navigation Satellite systems GNSS today consists of mainly two different systems, the American GPS and the Russian Glonass. GPS is the dominating system and today the GPS industry has total revenue of 14


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billion dollar. Glonass is not fully working and have a much more concealed position on the market therefore we will leave out Glonass in this chapter. In the future Europe will build their own system called Galileo, which is estimated to be fully functional 2008-2010. GPS have 30 satellites where each of them constantly sends out signals of the position and time of that satellite. The signals are received by receiver that need to have signals from four satellites to be able to calculate position and time by a method called triangulating (see Figure A-1)

X user

X#1

X#2

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Figure A-1 : Triangulating with three known signals. The receiver knows the speed of the signal and what time the three signals were sent; with that information the receiver could calculate the position. A fourth signal is needed if the time at the receiver is unknown.

A GPS receiver today consists of three-four distinct hardware parts (two analogue and one-two digital parts), NordNav only uses the two analogue parts and have replaced the digital parts by software algorithms that could run on a generic microprocessor. NordNav was first to demonstrate a real-time solution in software and was also first to commercialise the same technology. There are a few companies working with the same technology idea as NordNav but in the future the most GNSS receivers will be based around the same concept as NordNav are using today. GPS is a system owned by Department of Defence in USA but the system has both a civil and a military services. Since it is owned by the US military they never guarantee the civil service. That fact plus that the most knowledge around GNSS are concentrated in North America and Asia have forced Europe to start develop Galileo. Galileo will be very similar to GPS and is estimated to be operating 2008-2010. One of the ideas with Galileo is that it should be compatible with GPS so that it could be used in the same receivers. In the future the most receivers will actually be using both Galileo and GPS.

A-1.2.2. Market The GNSS market 2003 is estimated to have annual revenue of 14 billion dollar (Robroek Consulting 2003). The GPS market has over the last 4-5 years annually grown 20-25 % and this growth is even estimated to increase in the future. The GNSS market is an emerging market and new applications and scenarios for GNSS navigation and positioning are constantly invented. The main market driver today is the possibilities to develop GPS receivers with small footprint and low power consumption. In the future many consumer devices, as cellular phones or cars, will be equipped with GNSS receivers. Market forecast claim that 2020 cars and cellular phones will annually contain 2 billion GNSS receivers. (GPS World October 2003)


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Regional GPS Market Forecasted Revenue (BUSD)

sources: ABI 2001, 2002, US DoC 2001, Robroek Consult ing 2003

Figure A-2 : Market forecast by regions

Today the biggest GNSS markets are within Japan and USA, but with the development of Galileo, Europe will catch up as the development of Galileo goes along (Figure A-2). In some countries is legislation speeding up the market penetration of GNSS equipment even further. For an example has USA a mandatory regulation that rules that all new cellular phones should be equipped by positioning by 2005, and it should be with an accuracy that only GNSS could full-fill. Europe has considered the same regulations and this will speed up the adoption of GNSS in the mass market.

A-1.2.3. Competitors As in all emerging market there are a lot of new companies trying to get a share of the market. The common estimation is that there are over 500 companies in the world working with GPS. For an example during the last 3-4 years there have been 4-5 companies that only are started with the focus to get their GPS solution into cellular phones. NordNav Competitors can be divided into three main areas

• Companies providing traditional embedded GPS chipsets/modules. For example: Sirf technologies, ST Microelectronics, Sony/Valence, Fastrax/u-nav

• Companies offering GPS Intellectual Property for semiconductor development. For example: PrathusCeva, Tality/ARC, SnapTrack (A-GPS)

• Companies focusing on software GPS like NordNav. For example: FastLocation, Enuvis (A-GPS), Cell-Guide (A-GPS)

The competitors have a large range of different profiles, there are both old and large companies and there are smaller companies with the same profile as NordNav. Therefore, the entry barriers are also very important to describe. Entry barrier common for many markets, including GPS, are;


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• Need existing marketing and distribution channels • Must have a “complete product”, not just a “device”

The entry barriers specific to GPS-receiver development are: • GPS receivers are common (available in high volumes, competitive price, many

sources) • Available people with technical know-how is very scarce • Investment are substantial – to develop chips, software and receiver modules • Receiver designs and software available by license

A-1.3. NordNav present situation NordNav has had a positive development from the start and are now in an interesting phase with many possibilities for the future.

A-1.3.1. Technology and Products NordNav are using a new innovative software solution that enables the needed signal processing to be done in software which runs on a generic microprocessor instead of dedicated hardware. The technology was first shown feasible in 2001 by the group that started NordNav but today there are many other groups trying to achieve the same progress as they once did. NordNav have kept the advantage to other groups and with the product NordNav R20 is NordNav the first company that sells GNSS receivers based on complete software solutions. NordNav R2X family are a receiver family that is targeted towards research and development groups that conduct research on GNSS. The product is designed for very low volumes and the price is very high 5 000-20 000 Euro. The market for this product is very limited but the setup with a basic receiver that could be extended with future features enables a possible after market for the product. NordNav also offers a professional service to customers that need the specialized knowledge that the company possess. NordNavs goal of all professional services are either to develop new features to the R2X family receivers or to extend the knowledge within the company. This should become an of-the-self product for customers within R&D and Test & Verification. The next product that NordNav have planned to develop is a version designed to run on embedded processors such as microprocessors in cell phones, cars and similar consumer devices. This product will compete on the high volume markets with volumes from 5000 up to 5 million licenses. NordNavs revenues will come from 1) license fee per sold license (probably a limit at a certain volume) 2) customization fee that are a one-time and fixed fee and 3) support that includes updates/upgrades. This product will be down to half the cost of other hardware receivers and product containing a NordNav GNSS receiver in volumes of 1 million units/year will have a receiver cost down to 4-5 Euro per unit. In the future most of NordNavs revenue will come from the embedded product.


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A-1.3.2. Research and Development The Technology that NordNav use have over 10 man years of research at the academic level and since the start around 3 man years of research and development have been added to the core technology and the specific receiver. The core technology that NordNav use could also be used in future planned product lines. The development of NordNav’s embedded version is calculated to take approximately 10-15 man months and to avoid technology driven specification are NordNav actively seeking customer specifications so that the development could be customer driven. For NordNav two different guiding stars are clearly visible 1) Always do customer driven development 2) don’t start projects until you have finances for them. For NordNavs case this has resulted in postponing the embedded development until the required customer specifications is set and the finance for the project is secured. NordNavs first products the NordNav-R20 was developed just like this. During the first year of operation has NordNav been able to submit 2 patent applications and a lot of the R&D activities have been focused on new algorithms and adjustments to fulfil the specifications of the R20 product.

A-1.3.3. Personnel and Organisation Today NordNav have three full time workers that fulfil different roles within the company. The core group of the academic project was also the persons that started NordNav, soon after the formation of NordNav a Business manger was also hired. NordNav was started with a small number of employees. A clear strategy right from the start of the company was to build up a large network of senior advisors that could help the company in the different stages of the start-up process. 4 months after the start, NordNav had the first advisory board with senior advisors they helped NordNav in such things as strategic decisions and more hands-on issues as for an example financing. One of the members of the advisory board later becomes the chairman of the board and is today NordNavs temporarily General Manager. The general Manager was employed during the spring 2003 and have a temporarily assignment. The plan is that he should act as a general Manager during at least one year and after that period of Time the company will hire a more permanent CEO. The reason for this approach is that NordNav had a lot of uncertainty about the future during the first year of operation and instead of hiring a CEO that could have the wrong profile within one year make a temporary arrangement and hire the right profile of the CEO when the future have cleared a little bit. The management team in NordNav consist of the General Manager, the Chief Technical Officer (CTO) and the Business Manager. The team have weekly meetings where updates of the last week and planning of the coming week is recurrent subjects. The management team also take decisions about operating decisions. The development group consists of the CTO and a developer. They work in close cooperation with the two founders that not have an official role in the company on technical matters. The


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two founders that are not employed by the company have the role as technical advisors and work approximately 10 hours per week unpaid for the company. (Figure A -3)

Figure A -3: NordNav functional organisation chart

NordNav have a very limited work force and in the future NordNav have planned a split of the CTO tasks. The CTO will be responsible for R&D and then a new employee will be manager for the product operations. He will then be responsible for the product development (together with the CTO), product customization and support operations. That department is also the department that need the next employees. NordNav have today two offices (Luleå and Stockholm), the head office is in Luleå and a small branch office is in Stockholm. The future product development and support department will be located in Luleå (and maybe near large customers) and at the Stockholm office will mainly sales and marketing be located. Even though NordNav a scattered over two offices is NordNav trying to work very flexible and have mobile office places so that the location is where that person is needed most at that time.

A-1.3.4. Modus operandi NordNav are trying to plan the work for the near future with the help of a master plan (Figure A-4). The master plan today mostly covers the technical development and less business/knowledge development.

General Manager

Business Manager Chief Technical Officer

Product development

Research & development

Management team

Bookkeeping (Outsourced)

Technical Advisors


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Figure A-4: Example of NordNav’s Master plan In all product development projects NordNav is using a Tollgate Decision based model to steer the projects. This model is developed at Ericsson but suites NordNav as well. When a product goes from an idea to a ready product it has to pass 6 tollgates to become available on the market. Each tollgate gives a go or a no go decision. The tollgates are: TG0 Decision on start of pre study based on identified business opportunity TG1 Decision on start of project feasibility study TG2 Decision on execution of the project and approval of business plan


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TG3 Decision on investments for supply, distribution and launch TG4 Decision on limited introduction to the market TG5 Decision on general availability to the market This structured way of using going from an idea to a final product does not only include technical issues it also contain areas as organisation and business development.

A-1.3.5. Finances and financial constrains NordNav is today financed through local financiers and sales and was actually doing a positive result the first year. This has set some constrains on the organisation and the organisation has always been forced into making priorities on where to use the money. One of the hardest things has been to prioritise between the short and the long term goals (i.e. R20 product and embedded product). NordNav is looking for venture capital to be able to conduct the embedded product development in a faster pace then is possible without external financing. The NordNav management think that this is the only way to hit the market window as a pioneer within this new technology, which is NordNav’s strategy.

A-1.4. Company culture NordNav is built around a technical innovation with technicians as founders, therefore the company have a very engineering legacy that has influenced the company [appendix 2]. To start with no formality where used and many needs where solved as they arise. Since the employment of the General Manager has NordNav started developing more structure and for an example are NordNav developing a company guide. This handbook will be well known by all employees and all new employees will get their own copy of it. The manual today includes an IPR policy, policy for naming documents, a tollgate description of the product development, certificate of right to authorize expanses, Procedure for NordNav Board of directors, IT policy, all documents are decided by the board of directors. In the future the handbook will also contain for an example HRM policy, Market communication policy etc. The idea with all those documents is to get a more unified way of working and they should be used as a support in the daily work, not as a bureaucracy workload. This handbook together with the ideas and attitude of the employees in the company are creating the culture within NordNav.

A-1.5. NordNav and partnership NordNav is Building a small and flexible organisation, where things that could be done outside the company is done outside. Since NordNav is working in an emerging market and most likely, not going to stay as a sovereign organisation for ever does NordNav not have any plans to create a large company. NordNav have right from the start tried to develop partnership with other companies instead. Examples of this is that all bookkeeping is outsourced, the R20 product and the following products based on the same technology/platform will be sold through distributors, the embedded product will be sold through channel partners instead of building an own sales/distributing organisation. The technology development follows the same path as on the business side. Things that NordNav could get help from outside the company that is not core business are NordNav


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trying to outsource. In the most recent product development project (RXX development) is NordNav for an example using consultants for USB driver development, hardware development etc. For some R&D efforts are NordNav also using Luleå University of Technology, examples of this cooperation is students doing research projects in areas of interest for NordNav, Master thesis students doing projects within NordNav and also in the future joint projects and research between NordNav and the University. This cooperation as not finalized in any contract or similar but is built up within the people in both organisations. This way of building the organisation also reflects in which people to employ, core business will be product development and sales, all other things could be outsourced to other partners. Therefore will NordNav never employ all functions in the company and NordNav will also stay smaller then if they was doing everything in-house. NordNav is trying to take advantage of being small by keeping a flexible organisation. New partners will be added and old partnership ended depending on the current needs.

A-1.6. Management interview To ensure that the researchers had the same view of the firm as the management of NordNav one formal interview was conducted separate from the informal day-to-day information gathering. This was also done to verify management beliefs against the everyday workings of the firm. In this document they are only named as persona A and persona B. Some answers are kept confidential on the request of NordNav.

A-1.6.1. Introduction questions a. What are the overall goals for NordNav within 3-6 years timeframe?

Answer A: To become the worldleader in licesning Software GPS receivers Answer B: A position as one of the perceived market leaders in imbedded SW GPS&Galileo receivers is established with annual turnover growth 50+ percent and a profitability level of 25+ percent EBITDA

b. Which are the best way of calculate NordNav’s growth (e.g. turnover, number of employees, market share etc)

Answer A: Market share Answer B: Early adopter market share of embedded SW receivers and turnover growth exceeding traditional chipset competitors.

c. Does NordNav have any barriers to growth (Internal and external factors that will hinder NordNavs possibilities to grow)

Answer A: a) No market needs for a sw GPS b) To attract the finacials needed c) The get hold of competent people (both technical and business) c) Partnership Answer B: Financials, brand and market channel, potential risk of blocking patents

d. Which strategies and policies were/are the most important for NordNav to introduce (e.g. Patent policies, personnel policies, product development strategy, human resource strategy, etc)

Answer A: Patent policies, product development (particular software development) Answer B: IPR and product development strategy in partnership collaboration with key customers/ early adopters.


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A-1.6.2. Planning of resources Resources of all kind are, for most small and young companies, very limited. Being able to manage the resources in the right direction is of highest importance for success. With resources we mean everything from Human Capital, Technology knowledge, to monetary and equipment resources. e. Name the 5 most important resources (internal) for NordNav and rank them with

nr 1 as the most important. Answer A: 1 Employee's (technical know-how) 2 Software IPR's 3 Patent #1 (software correlator technology) 4 NordNav-R20 product 5 "Previous work" i.e the trackrecord of research prior founding NordNav Answer B: 1 Key customer relations 2 Team values and competence 3 IPR assets and R&D Human Resources 4 Market channel and networking partners 5 Cash Comments: "Cash" includes investor relations

f. With limited resources NordNav will not be able to do too many projects and product developments at the same time. Which project Comments/products development will be most important to focus the company’s resources on:

Answer A: The projects where the highest future potential is > 2 year

Or The projects where the highest nearest potential is < 2 year

Comments: The latter since finacicals seems difficult to attract to support projects which do not have a near term revenue possibility Answer B:

The projects where the highest future potential is > 2 year Or

The projects where the highest nearest potential is < 2 year Comments: R25 project is an obvious example

g. What different organisational functions should NordNav include in the product development projects that NordNav conduct?

Answer A: Product development management, R&D, support, product maintenance Answer B: All from Tollgate 2 or even earlier

A-1.6.3. Organisational and Human resource questions Most large companies have a clear and spoken organisational and administrative structure and a well defined human resource policy. All those parts contribute to a company’s culture. In small companies those structures and policy is sometimes not that well defined, however this is the period when a company starts building its culture. h. Which are the most important cultural building factors (i.e. factors that influence

NordNavs organisational culture) for NordNav and describe them in order of importance


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Answer A: A) The employee's them self "have fun & motivated co-workers". B) Freedom under responsibility (the employee can manage their time themselves, as long as the fulfil their duties) Answer B: Openness, fairness, courage, trust and dedication

i. Which organisational form should NordNav adopt (e.g. hierarchic, flat etc) Answer A: Flat Answer B: Flat, built on trust for individuals and with team spirit and totally open communications

j. What is your view of formal structure? How should NordNav handle formal structure and administration/bureaucracy

Answer A: I favor a flat, open structure, where people feel that they can freely talk to CEO/management. NordNav should however have a simple formal structurew with CEO, management and employees Answer B: A functioning management team based on some basic policies and guidelines is a mandatory requirement also for a small company. Meetings should be held regurarly and decisions recorded and spread to the employees. Monthly progress reports should be assembled and distributed to the Board. Templates and processes must be in place for customer interactions in the RFI, RFQ, Order, Delivery and Support stages.

k. What is your opinion about using external resources vs. employing the resources in the company?

Answer A: All fields related to technical know-how, technical competence increase for "core technology" i.e GNSS and in particular software development should be employed. Financial expertise should be hired - not employed. A CEO could be hired for short-term, particular prior a solid high-volume case (i.e long-term roadmap/goals read) exists, but a goal should be to find a CEO with "ideal" fit which could be employed. But for the current situation - hire in all services not related to core technology Answer B: When you are more than 80% sure of what profile you need permanently: employ somebody part or full time. And begin with a project employment 6-9 months before you offer a permanent job to the employee. If you are not sure about your real need or if you only need some ad hoc expert competence: hire a consultant for a limited time period.

l. What are the most important factors to think of when engaging top management resources to NordNav?

Answer A: A) Personal "fire" and desire to achive the goal. B) personal network c) proven track record & experience Answer B: Individual values must comply with 3a above.

m. Which of the following three criteria’s should be the main factor to create attachment for the personnel to work at NordNav?

i. Compensation and money for the work they are doing at NordNav ii. Qualities of the work, challenging and fun work tasks at NordNav

iii. Work group as a community, family feeling that keep the workers at NordNav.

Answer A: Qualities of the work (ii), together with (iii). Answer B: Qualities of the work, which should preferrably have a management feed back/ appraisal measure and be connected to a variable salary component

n. Which one of the following criteria’s is the most important for NordNav when hiring new personnel?

i. The current skills of the person


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ii. The potential and talent of the person iii. The fit of the person to the rest of the group

Answer A: (ii) Potential and talent, together with (iii) is the most important for long term success. Answer B: (ii) Potential and talent, with compliance with NordNav core values.

o. Which one of the following principals are the most important for NordNav when it comes to coordinating and controlling the work the personnel conduct?

i. informal control through peers or organizational culture ii. Professional control which emphasizes autonomy and independence

iii. formal procedures and systems iv. direct oversight

Answer A: (ii) Professional, "freedom under responsibility". Answer B: (i) Peers/culture, with a touch of professional control

p. List the 3 most important competences that NordNav will need in the near future?

Answer A: Professional Software development expertise. GNSS expertise. Venture Capital (financial) expertise Answer B: Manager Operations( Senior SW Developer), SW Developer, CEO

q. List the 3 most important competences that NordNav will need in the long run? Answer A: Embedded software development expertise (mobile terminals, cell phones. GNSS expertise, product management/expertise Answer B: R&D and technical support engineering, Sales and sales support professionals, Project management

r. Is competence development of the personnel important for NordNav? If so what criteria’s should be used to find the needed competence development?

Answer A: Yes. Identify what areas will need competence increase based NordNav master plan/ road map Answer B: Yes, very important. NordNav should quarterly identify the competence gap, i.e. the difference between anticipated need of competence for the next 12 months compared to the available competence. Then it is up to Nordnav Management to decide how to fill the gap by either employing new people or outsourcing to consultants/ subcontractors.

s. Should competence development be individual, in groups or combinations? Answer A: Combinations - certain technical expertise areas has to be individual, more generic should be group based Answer B: A competence development plan should exist for each employee. The plan should be followed up and updated at annual development talks.

t. Which skills are the most important to develop? Should “Hard” technical skills or “Soft” non-technical skills (including teamwork, project and leadership skills etc) be premiered, and why?

Answer A: I'm in favor of such program, which I believe should be group based. Minor things such as flower/move-tickets could be individual, but any cash rewards should be group based. The economical situation is important as criteri. Answer B: NordNav is a Software product company aiming at a leadership position, which implies that balanced soft and hard skills must be developed to build and maintain a world champion team capability and performance with focus on product management and product development.


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u. Should NordNav have incentive programs for the personnel? Which are the most important factors in such a program? ( i.e. Individual vs group and economical vs other criteria’s)

Answer A: A combination of both. Hard technical skill is core competence and has to be developed further. But equally important is the function of working as a team. The current employees can work well as a team, but important to further develop and in particular for new employee's Answer B: A bonus program is recommended and a variable compensation should be related to the accomplishment of measurable half year targets for company (50%)+team (30%)+individual(20%). This means that target settings and assessments of target fulfilment and bonus result will be done by management and anchored with the staff every 6 months.

A-1.6.4. Research or development A company based on an innovative high technology idea can use their technology asset in different ways. The company could either focus on developing their technology as much as possible (research) or they could focus on developing products around their core technology (development). v. Do you think NordNav should focus on research or development for largest

success on the market and why should they do that? Answer A: Development - since research cannot gain much market shares in the intented market segment Answer B: Development, and the reason is that it is very hard to find a profitable researsh niche for a small independent company the IT/ Telecom domain in comparison with what is possible in the biotech market.

w. Do you think NordNav should focus on research or development to get the highest company value in the future and why should they do that?

Answer A: I believe development of products and get a market share is the most important for company value. But I also believe a high competence level on the employee’s is very important for company value if looking at get acquired. Thus a combination, with more weight on development then on research, is most important forgetting the highest company value Answer B: Development, because no investors would be interested in a small research company.

x. What should the focus of the Research be? (e.g. diversify the existing technology, find the next generation of the existing technology, etc)

Answer A: Improvement of existing technology and diversify existing technology. In the early stage, the diversify and making of a complete product is very important, but in the long run, the improvements of the technology is very important since that will likely be what other companies are interested in and NordNav needs to stay in the lead. Answer B: NordNav cannot afford to work with pure basic reseach. Instead a reasonable share of the R&D budget, e.g. 10 %, should be used for applied reseach and process improvements.

y. What should the focus of the Development be? (e.g. differentiate the product, new products based on the same technology to new markets, etc)

Answer A: Differentiate the R2x products and develop a new embedded product E2x, which should be differentiated in a similar pattern


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Answer B: The Development should be extremely responsive to key customers/ early adopters requirements and expectations for the embedded E2X series. For the R2X portfolio, differentiation and excellent professional services/ support should be key to success.

z. What R&D should NordNav conduct in-house? Answer A: GNSS related to processing of the signals Answer B: Patent engineering and Software Development

aa. For which R&D activities could NordNav use external partners? Answer A: Hardware, i.e related to platforms, interfaces between hardware/software and analog component of GNSS. I.e items not related to GNSS processing/software Answer B: Patent legal advisory services and Hardware Development

A-1.6.5. Protection of Intellectual Property (IP) Intellectual Property are all kind of business related assets (e.g. Patents, know-how, trademark, design, copyright, technology assets, business idea, etc) and they are essential for all companies. Literature talks about 4 different strategies how to protect the IP: 1) Publish the IP in return for legal protection which gives.

a) Different variations of IP rights (e.g. patents, design patents etc). b) Protection so that no one else could get IP rights for the same things.

2) Keep the information secret inside the firm. 3) Make the information selectively and informally available to others. 4) Disseminate the information as widely and rapidly as possible. Source: Lee N Davis ( 2001) bb. Based on the different alternatives above: Which strategy (single, combined or

permuted) should NordNav use to protect the innovative technology ideas? Answer A: . I believe for software 2) is the best, i.e maintain source a internal secret. For NordNav, open source might be considered for parts, i.e 4),. So - shortterm, strategy 2), long term maybe a combination of 2 , 4 and 1. 1 should be used when a patent cannot be "afforded" or likley not to be approved Answer B: Alternative 1 for patentable innovations and alternative 2 for SW source code

cc. What is your view of patents, are they a cost or an asset? Answer A: Patents are very pricey, and they require large internal resources. But as IPR they are very important, but only patents related to core competence and technology shoud be persued. Answer B: Asset

dd. Why should NordNav use patents? (e.g. protect the technology or possibilities to earn money in the future, etc)

Answer A: To protect the technology used to hinder other for doing the same thing. And to build a IPR portfoliio attractive to other companies (competitors) Answer B: Create barriers for competition and strengthen the negotiation power in getting licence rights to other party patents in a cross-license deal


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A-1.6.6. Market Alignment Being first with a new technology or product type to an existing market or being first entering a new market is not always beneficial. Sometimes is the market not ready for the new innovation and sometimes the market do not even exist yet. (e.g. internet shopping market mature, 3-5 years after the technology mature for the internet shopping). ee. How should NordNav handle a delayed window of opportunity on the market?

(E.g. reduce the number of employees, trying to find other business then the original planned, etc)

Answer A: Focus on products & services which can result in revenue short term (i.e NordNav R2x product line) and be very careful in taking on large fixed costs (such as new employees) Answer B: Depends, but the natural first alternative is to reduce staff

ff. What are the advantages with being an pioneer on the market (with a new technology, product type or on a new market)

Answer A: Get the first market shares and establish a first customer base and partnerships Answer B: If successful in the market entry stage you might become the first and most profitable player in a new market segment/ niche

gg. What are the advantages with being an follower on the market Answer A: The market is proven that it exists. Someone else has products which can be used as reference and see what needs to be changed/adapted for success Answer B: Less investments because you can learn from the leader and avoid some mistakes

hh. What are NordNavs order winning criteria’s? (ie: What are the main reasons that other companies want to be partners or customers to NordNav?)

Answer A: Offer a more cost efficient solutio and very good support Answer B: Responsiveness and that NordNav delivers according to what and when the company has promised, according to competitive quotes.

Strategic Intellectual Resource Management - DIVA

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